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Home Buyers Webinar2 15 09[1]
- 1. Webinar: How to Buy a Home with Little or No Down Payment – In Today's Market Peter Thompson
- 5. Appreciation
- 7. Example:
- 9. 10% down = $10,000
- 10. Over the Next 5 Years
- 11. 10% increase = $10,000
- 12. Home value now $110,000
- 14. 100% return!
- 16. If you continue to rent
- 17. where will you be
- 18. in 5 years?
- 19. in 10 years?
- 21. Historically low interest rates - going up soon
- 22. Large inventory of homes to select from
- 23. Buyers market with home prices at bargain levels and sellers flexible on terms
- 24. Programs available with low down payments and great rates – is getting more expensive
- 26. Any upcoming family or personal life changes?
- 27. Are you ready for the responsibilities of home ownership?
- 28. Are you comfortable putting down roots in your community or prospective community?
- 30. Are there existing expenses you can reduce?
- 31. Have you budgeted to determine how much you can really afford?
- 32. Do you have a savings plan?
- 34. Evaluation of credit, income, and down payment.
- 35. Approval through automated underwriting systems
- 37. FHA requires 620 minimum score
- 38. Do you pay your bills on time?
- 39. Credit Balance vs. Credit Limit Increase score by lowering balances
- 40. What is you mix of credit?
- 41. Length of credit
- 42. Credit inquiries
- 44. Rapid re-score
- 46. Ratios: housing / debt
- 47. How much can you safely afford?
- 48. Installment debts of less than 10 months don't count
- 50. 3.5% cash down payment for FHA
- 52. loan against / liquidation of 401k
- 53. Tax refund
- 54. Sale of major assets
- 55. Gift from family member (paid back after tax credit refund)
- 56. Ask seller to pay closing costs
- 58. You know your price range
- 59. You have provided required documentation for the application: pay stubs, W2s and bank statements
- 60. Your credit is assessed and approved by the automated underwriting system
- 62. All cash can be a gift
- 63. Up to 6% of sale price can come from seller concession (all closing costs)
- 64. FHA guidelines are more lenient
- 65. Competitive interest rates and terms- better for most home buyers
- 66. Condo buyers can buy with a lower down payment and no extra price hits
- 67. Most borrowers can qualify for a higher amount
- 68. continued.. .
- 70. 203k program available for homes that need remodeling or repair
- 71. FHA mortgages are assumable, helpful when you want to sell years down the road
- 73. Close to job? Fit your lifestyle?
- 75. A good investment for reselling years down the road?
- 79. Posted Signs
- 80. Realtor
- 82. A Realtor has access to the multi-listing service.
- 83. A Realtor knows the market, and why something that looks like a bargain may not be the best choice for you.
- 84. They can tell you both advantages and disadvantages of one home over another.
- 85. They usually negotiate better than you would yourself.
- 86. A Realtor can steer you through a safe course to the closing.
- 87. It's their full-time job. You benefit from their experience.
- 89. Someone who has experience
- 90. Someone who works with First Time Home Buyers
- 91. and is happy to coach you through the process
- 92. Someone you get along with and can relate to
- 94. Make sure the terms work for you
- 95. Example: If tight on cash for closing, ask the seller to pay closing costs as part of the offer.
- 96. Accept / Reject/ Counter offer
- 99. Two-step process: 1) accepted by seller 2) bank approval
- 100. Have you Realtor do some research before you make an offer
- 101. Longer and more difficult if they have a second mortgage.
- 102. Be prepared to move on.
- 105. Sign the application
- 106. Questions & Answers Peter Thompson
- 107. CONTACT ME Cell: (630) 479-6424 Fax: (630) 929-9787 Email: ptmortgagegroup@gmail.com Website: www.ptmortgage.com Blog: www.ptmortgage.com/blog Facebook Page: PT Mortgage Group – Mortgage Loan Services Peter Thompson
Notes de l'éditeur
- Introduction by Jen I would like to introduce Peter Thompson who will be conducting this webinar today. Peter is a senior loan officer with the PT Mortgage Group, and a first time home buyer specialist. He has been in the mortgage business for over 19 years and is acknowledged as an expert in the industry. He has been quoted in the Chicago Tribune, Chicago Sun Times, CNN and news papers across the country. His entire approach to home buying is that education matters. He writes regularly about the issues that are important to first time home buyers on his blog at ptmortgage.com, and this seminar is an extension of that mission. Pete: Thank you … Today I want to cover the issues that matter the most to you as you start the process of buying your first home:
- Does it make sense to buy a home? Is now a good time to buy? What can you do to qualify for a mortgage and make sure you get the best deal for you? What can you do to avoid the traps that ensnare so many fthb? This is a lot of information and we don’t have a lot of time, but I will make sure to save some time for questions at the end. If you have any questions please write them in the chat box, or wait until the question and answer period at the end of the presentation.
- Advantages of owning your own home – If you are starting to think about buying a home, the first question you have to ask yourself, is why? We’ve all been told that home buying is a good thing to do, and there are a lot of personal reasons why you should want to buy your own home. Home ownership gives you personal control. It means you have a place to call your own. It allows you to put down roots in your community and is an extension of who you are. But there are also some real strong financial reasons to buy: Tax benefits – One of the key advantages of real estate is that with tax benefits it cost less to own a home then it does to rent for the same dollar amount. The reason is because the government subsidizes real estate through tax breaks for home owners. All the interest you pay, the real estate taxes and in some cases the mortgage insurance are tax deductable. What this means to you, is that a $2,000 total mortgage payment is really equivalent to a rent of around $1,400…. So Uncle Sam is helping you pay the mortgage each month. Equity build up – This is another big benefit of owning your home. With a typical mortgage each payment is broken down into principal, or paying back the amount you are borrowing, and interest, the cost of the loan. The interest is based on the amount of principal left, so each month the interest is a little lower and the principal amount grows a little more. In the early years you are paying mostly interest, but this changes over time. As first time home buyers you aren’t likely to pay the loan off entirely before moving, but this is like a forced savings plan and it makes a big difference over time. Appreciation - It used to be that if you bought a house now, you would always expect that it would be worth more down the road. The last few years have proved that wrong. Those who bought their homes back in 2005 or 2006 have lost a lot of value and homes now are priced much lower than they were a few years ago. But new home construction has almost stopped, and at some point the supply of homes will balance out with the demand and home prices will start moving up. Because you usually only put down a small down payment when buying a home, the increases in price are leveraged.
- Here is an example of how this works. Let’s say that you bought a house for $100,000 and put 10% down, or $10,000. Lets say that over the next 5 years your home goes up in value by 10%. The new value is $110,000. You only invested $10,000 in the first place, so that 10% increase means equity had doubled, a 100% return. That is the power of appreciation, and the reason people are able to trade up to bigger homes over time. When home prices start going up again, this will be a big advantage.
- Another big benefit is control. If you buy a home that is undervalued, as so many homes are today, that means you are starting out with more value right away. You can also increase the value by making improvements on your home. If you buy a home that needs some work, you can often increase the value by just cleaning up and doing minor repairs. And last - If you continue to rent, where will you be in 5 years? 10 years? Real estate is still the best way to build wealth and help your overall financial situation.
- These are all reasons to buy a home anytime, but there are some special reasons why RIGHT NOW may be the best time to buy a home – This may not make sense for a lot of people. The economy is a mess. Unemployment is high. Foreclosures are a big problem and the future is uncertain. But my own feeling is that this may be the best time to buy a home we’ve had in years, and it may be the best time to buy for years to come. This is what is happening now - First time home buyers tax credit – This has been extended so that you have to have the property under contract by April 30 th , and you have until June 30th to get your financing together and close. The tax credit is worth 10% of the sale price up to a max of $8,000. So if your home is over $80,000, the tax credit is $8,000. There are some income caps but most first buyers will qualify for the full credit. The credit is given to you as a check after the closing, and you can use this for anything you want or need. We have historically low interest rates, which are likely to go up soon – Rates over the last year have been at record lows, but most experts expect that rates have to go up. Here is why. At the end of 2008, when the financial markets were collapsing, mortgage interest rates were near 6.0%. If you remember the mood back then, fear was in the air. The FED (Federal Reserve Bank) stepped in at this time with an unprecedented action. They started a program of buying mortgage backed securities, initially for $750 billion dollars, and then increased the program to 1.25 trillion. Well, they’ve already spent most of that and the program is scheduled to end after the first quarter of 2010, that means next month. The FED has said several times that they won’t renew it. So sometime soon, probably before the program officially ends, unless someone else steps in and takes the Fed’s place in buying these mortgage bonds, rates are going to move up. Estimates are this will mean rates are higher by ½ to ¾ of a point – still great rates, but not all time lows. Higher interest rates mean higher payments for you. Large inventory of homes to select from – there is a lot to choose from now, so you can find the home that’s right for you. This is a buyers market with home prices at bargain levels and sellers flexible on terms – you are in control now and the leverage is on your side, not the sellers. This means that not only can you negotiate better prices, but you can get the terms you need, like getting the seller to pay for all your closing costs. There are now programs available where you can buy with low down payments and great rates – but these programs are getting more expensive. Mortgage guidelines have tightened continually over the last few years. Recently FHA, which is the most popular program for first time home buyers, announced that they are increasing their fees as of the beginning of April. More changes are still on the way.
- Is now the best time for YOU to buy? Are you ready to buy now? Take a personal assessment of where you are now, and where you expect to be over the next 5-7 years Is your job stable? Do you expect your family or personal life to change soon? Are you ready for the extra responsibilities of home ownership? Real estate is a long term investment. If you aren’t prepared to hold on to your home for at least several years, it may not make sense to buy. Buying a home gives you roots in your community – if you aren’t ready for it, it could be an anchor
- Other things to consider – Are you in a position to buy now? How is your credit rating now? Are there things you need to take care of before buying a home? Are there expenses you can cut down on? In the early years home payments may be higher than rent, have you budgeted how much of a payment you can really afford? Do you have a savings plan? There are ways to buy with no money out of your own pocket, but it is easier and you have more control if you have savings and your budget is under control.
- Steps to buying your first home – Once you’ve decided to buy your own home – First step – mortgage pre-qualification Can you qualify for a home mortgage loan? How much of a home can you afford – how much of a mortgage can you afford? The first step is a short conversation with myself or another qualified loan officer – I look at it this as a game of 20 questions. I need to ask you all about your financial situation, your goals and what you are hoping to accomplish by buying a home. The more I know about … Mortgage pre-qualification is based on 3 things – credit, income qualification and down payment. Actual approval is done through automated underwriting systems, but the approval is based on these factors
- Credit – What does my credit report say, and how will a mortgage banker look at it? Poll? Fico scores – 350-850 range, the higher the better. Most people will fall in the 600s and 700s. For FHA you will need at least a 620 score. For conventional they have pricing add-ons based on your score, so in most cases you will need at least 680 and 740 or over to get the best pricing. Fico scores are broken down into five categories: Do you pay your bills on time? … What is your balance compared to your max credit limit? … Usually the quickest way to increase your score is by lowering credit balances. What is your mix of credit? … Length of credit. … Credit inquiries …
- How to dispute your credit and improve your credit score. If you have some mistakes or issues on your credit report, there are ways to improve your score. I will send information on how to do this after the call. Rapid rescore – if problems show up and you don’t have time to do the clean up on your own.
- Income qualification – Usable income – specific guidelines on what income is usable, and what isn’t. Ratios – housing and debt. How much can you afford? All programs have stated ratios … With FHA you may be able to qualify for more than you can safely afford Installment debts of less than 10 months usually don’t count against you.
- Assets and down payment - We need to show enough cash to pay for not only the down payment, but closing costs and pre-paids (money to set up the escrow accounts, basically book keeping expenses which will often be off set by credits from the seller at closing). The truth is that buying a home is expensive. The title, bank fees and transfer taxes run into the thousands –you don’t need to save all the money yourself, it is common to negotiate for the seller to pay these items, but you do need to understand exactly how much it all will cost. That’s something your loan officer will be able to help you with as part of the pre-qualification. Cash needed – Down payment 3.5% for FHA. Where can this come from? Savings, loan against or liquidation of 401K, tax refund, sale of major assets, gift from a family member (this can be paid back later – after tax credit refund). With FHA all the funds can come from a gift, but we need to document everything correctly. Paper trail for any large deposits. Ask the seller to pay closing costs – this minimizes the cash you need out of your own pocket and lets you use the cash where it will make the most sense.
- Once you have been pre-qualified, and you know the price range to look in and what the best program will be for you, the next step is to be pre-approved. This just means that we will take the information you gave us as part of the pre-qualification, get all your documentation (pay stubs, W2s and bank statements) and run credit and run through the Automated Underwriting System. We will put together an estimate of closing costs – road map to what you will need.
- Over the course of this webinar, I’ve mentioned FHA several times. The reason for that is that for most first time home buyers, FHA is the best program, and the one you will most likely buy with. FHA is a government backed loan program which is designed to allow more low and middle income buyers afford to buy homes. A couple of years ago, this program was just a little slice of the over all mortgage market. But as conventional guidelines tightened, and mortgage insurance companies restricted their business to only the most qualified borrowers, FHA has become the go-to program for anyone who doesn’t have a large down payment or perfect credit. Here’s why FHA is the best program for most first time home buyers: Low down payment All cash can be from a gift Up to 6% of sale price can come from seller concession (all closing costs) –this changes to 3% after April 1 st – but that is still enough for most situations. FHA credit guidelines are more lenient and common sense Competitive interest rates and terms comparable to conventional – better for most home buyers. Condo buyers can buy with a lower down payment and no extra price hits. Most borrowers can qualify for a higher amount with FHA
- Allows non-occupant co borrowers (co-signers) so you can blend income 203k program is available for homes that need repairs and remodeling. FHA mortgages are assumable, which will help you when you want to sell years down the road. When you are getting your pre-approval together, check to see if you qualify for the MCC bond program. This isn’t a mortgage, but a way for moderate income buyers to take advantage of a state bond program which allows you to write off more of your mortgage payment on your taxes.
- Once you have been pre-approved and know how much you can afford and the best way to finance your home, you are ready to start looking at properties. Here are some things to keep in mind with your home search What areas do you want to live in? Close to job, fits in with your life style. What type of home – Condo, single family, 2-4 flat – different qualification for each type. Schools – even if you don’t have kids, good schools mean good resale value. When you buy look to what others will want to buy down the road. Condition of the property – is it ready to move in, or can you do work yourself if you need to. Special note on Condos – a lot of you on this call will probably buy condos. Condos are usually a great fit for first time home buyers because they suit your life style best. But condo qualification is a little different than it is with a single family home or town home. The financial health of the building is just as important as your qualification. You need to make sure that the condo you are interested in is going to be able to be financed. The best way to do this is to have me, or the loan officer you are working with, send over a condo questionnaire and do some research before you get too serious about the property. I mentioned before that FHA is a great way to buy condos, but in the condo has to be on the FHA approved list, or the seller or developer has to apply to HUD to get their condo approved. A lot of properties are going through this process now, but you will want to find out if this is a possibility early on and not waste time looking at condos you won’t be able to get financing for.
- How do you start looking? Online is a good place to start, and there are a lot of places where you can do free home searches. But once you are serious, you need a Realtor
- Benefits of using a Realtor You don’t pay them anything – they are paid by the seller as part of the commission. A realtor has access to the multi listing service and can show you all the properties that fit into what you are looking for and can afford. A Realtor knows the market and can tell you why something that may look like a bargain, may not be the best choice for you. They can tell you both advantages and disadvantages of one home over another. They go through hundreds of homes each year, and they see things that most people wouldn’t even notice. They can usually negotiate better than you would yourself. A Realtor knows the ins and outs of what can go wrong in a real estate transaction, and can help steer you through a safe course to the closing. For a good Realtor, this is their full time job, they can do it a lot better than someone who is trying to learn for the first time..
- What to look for in a Realtor Someone who knows the market you are looking in. Someone who has experience. If you work with someone who is still learning the business, they are gaining experience at your expense. Everyone makes mistakes, especially when they are starting out at something. You don’t want mistakes that could hurt you on one of the most important purchases of your life. You want someone who works with FTHBs. You may have a Realtor who is very knowledgeable and experienced, but it takes more work and more patience to work with buyers who are doing this for the first time. You are likely to be more cautious, have more questions and want more hand holding in general. This is normal. A lot of Realtors love to work with new buyers, it can be a real emotional lift to help someone buy their first home. Find someone that has this kind of mind set. Someone who you get along with and can relate to. You get to know someone pretty well while riding around in their car for a day. If you don’t share the same values and connect on a personal level, this whole process can be excruciating.
- What happens once you find the right home? Making the offer – everything is negotiable, and it doesn’t hurt to ask. Make sure the terms work for you. This is the time to check in with your loan officer again and make sure that you are structuring the offer to give you the best benefits. For example, if you are tight on cash to close, you want to make sure that you ask for the seller to pay closing costs as part of the offer. Once they agree to your terms it is too late to change anything. Your Realtor will help put the offer together and you have control over a lot of things. It’s not just the price, but the terms. This means how much you will put down for the down payment, how much you will give them upfront as earnest money, the date of the closing and what items, such as window treatments and appliances, are included in the sale. Once you make the offer, the seller will come back with a response. This could be to accept the offer the way it is, reject it entirely, or counter the offer by changing the price and terms. The offers and counters are handled by the realtors, and this could go back and forth several times before you either come to an agreement or call it quits and move on to the next one. Negotiating a contract is exciting, but also stressful. If you’ve fallen in love with the house, it’s easy to let your emotions carry you away. If that happens you’re likely to over pay or agree to terms that don’t work for you in the long run. Try and relax through the process, take your time and stay focused. If you have a win-win attitude, it will make the whole process easier and more rewarding.
- Short sales and foreclosures are a little different – With foreclosures you are dealing with a bank, and they often move slower than you would like. You can negotiate with a bank just like you can with a private seller, but they may have to go through several layers of bureaucracy before you get an answer. If there are any problems with the property, don’t expect the bank to fix them. What you see is what you get, and if any repairs need to be made, it is usually up to you. Short sales are a little more complicated. With a short sale the owner is selling you the property for less than what they owe the bank on their mortgage. So this is a two step process. First you get the contract accepted by the seller, then it is sent off for bank approval. This can go quickly, or take forever. A lot of it depends on where the homeowners are in the process. If they are already working with the bank and have a case manager assigned, and the bank has done their research and due diligence already, this could go fast. If they are starting from scratch expect a slow process. At the beginning of last year, when a buyer made an offer on a short sale it was like they threw the offer into a black hole and months went buy without them hearing a thing. It often goes quicker now, but each one is different. Have your Realtor do some research before you make an offer. If they have a second mortgage on their home, expect a more difficult time. This process has to be approved by both lenders, and if there is no equity the 2 nd mortgage holder doesn’t get a thing. So they may try and short circuit the deal in order to get something out of it. If you are planning on taking advantage of the home buyers credit and time is a factor, be very careful with short sales.
- Once you have a contract this is the time to shop around to make sure you are getting the best deal, working with your attorney, updating the documentation and signing the mortgage application. You will have a flurry of activity, and then it will be a waiting game until the closing. There is a lot more to cover here, but we are running out of time, and I do want to get to some questions….
- Questions?
- Thank you for all your questions, but we are at the end of our hour. If you still have questions, please feel free to email them to me and I will answer individually, or join our face book group and post them there for answers. Please be sure to stop by my blog or subscribe for updates. I will be sending everyone a home buyer’s guide which covers this subject in more detail. I am also available for anyone who is ready to start the process. For a free, no obligation consultation, please give me a call or send me an email and we can set a time to go over your own situation, run your credit and see what the best options are for you. Thank you again for taking the time to attend, I hope this has been helpful.