CELIA MENDIVIL PRIMAVERA FOUNDATION FEB. 28, Renting versus Buying Finding the Right Place To Live Budgeting and Your Finances

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1 CELIA MENDIVIL PRIMAVERA FOUNDATION FEB. 28, 2011 Renting versus Buying Finding the Right Place To Live Budgeting and Your Finances

2 Renting vs. Buying If you are looking for a new home, your first decision is whether you plan to rent or if you are ready to buy

3 Advantages of Renting Deposit requested by landlord is much smaller than the 10% or 20% down payment usually required for a lender. You commit yourself to lease for a year and move when the lease ends. Landlord is responsible for repairs and maintenance at no added cost to you. Renting you could have more access to commodities such us pools, gym, recreations centers, etc.

4 Advantages of Buying With your monthly payment you increase ownership share of your home. This is called building equity. Equity= property value subtracted by the amount you owe. If property values go up you may sell at a profit. If you need a loan maybe you be able to borrow against the equity you ve built at a lower rate.

5 Advantages of Buying Income tax credit: you may usually deduct mortgage interest and property taxes when you file your income tax return which can be a mayor savings.

6 Drawbacks RENTING: no space, less privacy, contract with more restrictions, no equity. BUYING: pay taxes, hazard insurance, responsible of maintenance, less mobility.

7 Finding the Right Place to Live Attend homebuyer education class Determine how much you can afford to spend Apply for a loan Get the loan pre-approved Decide what kind of house you need Shop for a home Make an offer Inspect the home Get insurance and additional inspections Close the loan

8 Finding the Right Place to Live Think about your priorities: Community Services: schools, childcare, church. Convenience: close to job, public transportation, near grocery. Neighbors: near relatives, friends, active community groups.

9 Finding the right place to live Homebuyer wish list need/or want Location: school district, quiet, parks, near relatives, friends, work Style: age of the house, contemporary or traditional style, two story, detached, condo. Interior: house size, # bedrooms, baths, kitchen appliances, closet space, fireplace, carpeting, laundry room Exterior: brick, stucco, wood siding, vinyl siding, landscaping, porch, deck, large yard, fence, garage, driveway, swimming pool Mechanical systems: central air condition, heating system, plumbing, ceiling fans, window air conditioners.

10 Your Finances THE FOUR C S OF CREDIT CAPITAL : Savings CAPACITY: ability to pay debt. CREDIT: The act of borrowing money with the promise to pay it back in the future. Your credit history is used by lenders, insurance companies and employers. COLLATERAL: Guarantees that the total loan amount is going to be pay off.

11 CAPITAL: Money you have available Down payment: 3.5%, 5%, 10% or 20% Upfront fees: earnest money, appraisal, inspection costs. Reserves: some lenders require you to have one or two months of your mortgage in savings.

12 Capacity Will you be eligible for a mortgage? Two main topics you need to look at: Income and your debt. The money management/budgeting process is about choosing how to spend and save your money. Establish a realistic plan Setting goals and create a spending plan to meet your goals: Short, Mid, and Long Term Trim expenses and find ways to save.

13 Establishing Your Budget 1. Gather all of your pay stubs, bills and receipts. 2. Itemize all the things that you spend your money on monthly. 3. Calculate your monthly net income based on how frequently you are paid: Every two weeks Net income x 26 = / 12 =

14 Monthly Net Income If you get paid twice: Net income x 24 = / 12 = MNI If you get paid weekly: Net income x 52= / 12 = MNI

15 DEBT PAYMENTS Rent 650 Electricity/gas 150 water 50 Food 300 Telephone / cell phone 105 TOTAL 1255 OTHER MONTHLY OBLIGATIONS Credit card Credit Card 2 35 Credit card 3 25 Child support 285 Car loan 380 Car loan 425 Student loan 60 TOTAL 1320 GRAND TOTAL 2575 TOTAL MONTHLY NET INCOME MINUS LIVING EXPENSES AND OTHER MONTHLY O (after tax deductions) EXTRA MONEY OR LESS MONEY? TOTAL 1025

16 Capacity Spend no more than 31% of your MGI for mortgage payment. Housing ratio/front ratio. 4,320 X 31% = 1,339 PITI (MI, HOA) Spend no more than 42% of your MGI on regular debt payments including PITI. Debt to income ratio/back ratio. 1, = 2,659 / 4,320 = %

17 Credit Credit Report: A document that outlines your credit history containing personal information, recent request for credit (inquires), public records, and information about every account you have opened.

18 Credit Creditors and lenders report consumer data records to the three nationwide credit report agencies; Equifax, Trans Union and Experian. Credit Score: It is a numerical interpretation of how a consumer s credit ranks on a computed scale usually ranging from Fico scores rates a consumer on how much of a credit risk they are; low score/high risk, high score/lower risk. Scores help lenders evaluate a customer s ability to repay.

19 Credit Fico score is based on several factors: FICO SCORE COMPONENT PAYMENT HISTORY 35% SCORE WEIGHT TIPS TO HELP IMPROVE CREDIT PAY BILLS ON TIME AMOUNT OWED 30% DECREASE BALANCES LENGTH OF CREDIT HISTORY 15% KEEP OLD ACCTS. OPEN DO NOT SWAP ACCTS. CONSTANTLY NEW CREDIT 10% APPLY FOR NEW CREDIT ONLY IF REALLY NEED IT TYPE OF CREDIT 10% HAVE A SENSIBLE MIX OF CREDIT TOTAL 100%

20 RESOURCES Free copy of your complete credit report: and/or More information about credit practices and consumer rights: Free credit and housing counseling services visiting the website and look for HUD approved counseling agencies.