Neighborhood Housing Services of Greater Cleveland Homebuyer Handbook We d like to buy a home but we re on a limited budget......and we re not sure how to start.
Let s check it out. nhscleveland.org Fact 1: Participants who complete the NHSGC homebuyer education courses have a foreclosure rate of under 1% Most of our homeowners also use other NHSGC services like Home Repair and Financial Fitness! *As measured by the default rate on a first-time-buyer mortgage program that requires Home Stretch. Neighborhood Housing Services of Greater Cleveland (NHSGC) 2
Buying a home may seem like a challenge, but... Local homeownership counselors can help you figure out if owning a home makes sense for you. And this help is free! Homebuyer Handbook 3
The Homebuying Process The Neighborworks Way... 1 First Contact Call or visit the Homeownership Center and sign up for orientation 2 Orientation How to buy a home Mortgage payment and other costs Your Homeownership team 3 Counselor s Assessment A counselor reviews your credit report and financial stability, and evaluates your readiness and needs 4 Credit and Homebuyer Training Depending on your credit score, you ll receive either: One-on-one counseling to improve your score or An 8-hour credit and homebuyer training course 5 Home Maintenance Workshop Learn to maintain your new home Working with contractors Repair vs. Rehab Neighborhood Housing Services of Greater Cleveland (NHSGC) 4
6 Individual Counseling 7 Counseling is scheduled within 30 days of completing the Home Maintenance Workshop Certificate Consultation Your final mortgage readiness review is complete Your certificate is issued Graduation! 8 Choose and Finance Your Home Choose a lender that fits your needs Find the right neighborhood Find an affordable home Make the offer/ Schedule the inspection 9 Monitor & Follow-up Your counselor reviews loan documents for fairness and accuracy before closing This review can be held at NHSGC offices 10 You re a Homeowner Now! You ll get invitations to other NHSGC services, like EnergYou and financial workshops Homebuyer Handbook 5
Homeownership Counseling can help you: Address your credit issues and prepare your finances for homeownership Determine how much home you can afford Guide you through the mortgage and homebuying process Help you access grants and loans for downpayment and closing costs Neighborhood Housing Services of Greater Cleveland (NHSGC) 6
Preparing Homebuyer Education You will learn about important topics like credit, savings, budgeting and you will gain a clear understanding of the steps to homeownership and being approved for a mortgage loan. Available in person and online. Meet with a Homeownership Counselor NHSGC s experienced HUDapproved counselors help participants by: Analyzing income, debt and financial situations Providing credit reports and scores for three credit bureaus Establishing or improving credit history Determining mortgage readiness Reviewing affordable mortgage loans, grants and downpayment assistance programs Assisting with mortgage application How can I improve my credit score? Here are a few things you can do. That s a great resource! Homebuyer Handbook 7
Applying NHSGC Loan and Application Assistance NHSGC s multiple participating lenders all offer different mortgage products for low- to moderateincome borrowers. Within a range of products, here are some general guidelines: NHSGC reviews your information from the position of a participating lender for potential pitfalls in obtaining a mortgage loan Loans are typically 30 years; you may be eligible for a shorter-term loan Generally 3 5% down payment Low credit scores can be discussed with an NHSGC counselor A pre-purchase homeownership counseling certificate, available through NHSGC, is required to qualify for all affordable mortgages Full documentation of income, including two years, IRS tax returns and recent pay stubs Your homeownership counselor will help you navigate this process Nice to meet you. So here are your best options... Neighborhood Housing Services of Greater Cleveland (NHSGC) 8
Buying Homeownership Assistance Programs Assistance is available from a variety of homeownership programs; an NHSGC counselor can help you identify the best resources for your situation. EnergYou This innovative course investigates energy consumption and environmental impact, and explores housing features, products, utility savings programs and individual behaviors that can help reduce monthly expenses... and your overall footprint. ehomeamerica Quality online homebuyer education anytime, anywhere. ehome doesn t replace in-person homebuyer counseling, but it lets you study at your own pace, where and when it s convenient. *Online courses are not eligible for the Cuyahoga County Down Payment Assistance program www.ehomeamerica.org Land Trust Homeownership Through Community Land Trusts, low and moderate income families use 99-year renewable leases to build equity like traditional homeowners, while preserving the low cost of their homes for the long term, so future residents can have the same opportunities. $ Downpayment and assistance programs are available through NHSGC. Speak with a homeownership counselor to learn more! Homebuyer Handbook 9
Making It Work Along with the advantages of homeownership there are many responsibilities. Homeownership counselors also provide post-purchase counseling. Post-purchase guidance includes: Foreclosure prevention Outreach and education for those targeted by predatory lenders Refinance counseling Information on personal money management My partner and I are having trouble paying. OK, let s look at your account. Neighborhood Housing Services of Greater Cleveland (NHSGC) 10
Easy steps to start right now: Homebuyer Handbook 11
Step 1: Understand Credit Ratings and... Debt to Income Ratio (DTI) If you have ever used a credit card, or made a large purchase like a car using a loan, you probably have a credit rating. Your credit rating allows lenders to assess your payment habits...and/or credit. Your credit rating is a history of: How much you ve borrowed Who you borrowed from How well you paid back your debts How you are handling your ongoing debts The DTI is the maximum monthly amount you can spend for a house payment (principal/interest/taxes/ insurance) plus all other creditor debts. This percentage ranges from 36% 41% depending on loan type. Your gross income DTI = how much you can spend on your house payment. A high level of debt will reduce affordability and/or make you ineligible for loans. The more monthly debt payments you have, the smaller the amount you can spend on your home purchase. You may need to reduce debt before you apply for a mortgage loan. Neighborhood Housing Services of Greater Cleveland (NHSGC) 12
Step 2: Check Your Credit When you apply for credit whether for a credit card, a car loan, or a mortgage lenders want to know what risk they d take by loaning money to you. A credit score measures the likelihood you ll repay what you owe; it is based on information in your credit report. There are many varieties of credit scores available to lenders. But the most widely used for large loans are FICO scores, based on a scoring system developed by Fair, Isaac & Co. by the three national credit bureaus Equifax, Experian, and Trans Union. You Need a Good Credit Score: To get approval for credit for mortgages, car loans, installment loans, and credit cards; to obtain a preferable interest rate on a loan; to obtain lower-cost homeowner s and car insurance. Employers and landlords can reject applications according to credit worthiness. There is no quick fix for credit repair, but you can develop your own plan for improving your score. Hi. I d like to apply for a mortgage, please. Homebuyer Handbook 13
Step 3: Improve Your Credit Order a copy of your credit report then review it and correct it. You are legally entitled to one free report a year. You can go to annualcreditreport.com and order your free credit report. When you get your report, review it and inform the credit bureau of any mistakes. Then be a bit patient. Changing a mistake on your report (like a mislabeled late payment) can take 30 days to 4 months or longer. Since corrections can make a big difference in your overall score it s important to remember that the sooner you correct your report, the faster your score will improve! Pay your bills on time. Your payment history counts for 35% of your overall credit score. Therefore paying on time is the most important thing you can do to create credit score improvements. Also a recent missed payment is more likely to lower your score than an isolated late payment from way back. So if you are prone to forgetting to pay your bills, use tools; set up autopay to pay the minimum balance on time. Scared of autopay? Then set a date every month that is bill-writing day and really stick to paying on that date. I ll get my free credit report on annualcreditreport.com Oh my!..i ve got a little work to do. Time to pay the bills! Good credit... Here I come! Neighborhood Housing Services of Greater Cleveland (NHSGC) 14
Don t open a lot of new accounts over a short time. When you open new credit the banks think you re about to go on a spending binge and are therefore a higher credit risk. Avoid sending that signal. But... If you have a questionable credit history, open a few new credit accounts, use them responsibly and pay them off on time. This feels a bit scary given that you re also being told to not open new lines, BUT payment history is 35% of your score, so if you ve hurt your credit, establishing a good payment history is key to getting your credit score back together. Also remember to keep your credit balance below 25% of your credit limit per-card (see page 16). Use the credit cards you have responsibly and as frequently as is prudent. If you don t use your cards the banks will sometimes close them or lower the limit. So it is important for them to stay active, but this is not a license to go wild. Use for small purchases and stay current on payments. Try to pay off the entire balance in full each month. Avoid carrying a balance from month-to-month. Elements of your credit score types of credit 10% length of credit history 15% new credit 10% payment history 35% amounts you owe 30% Homebuyer Handbook 15
Don t close old accounts. Credit history (how long you ve had the card) counts for 15% of your overall score, so closing cards sets you back. Also, you should aim to keep your debt below 25% of your credit limits. If you close accounts, you give up some of your credit which makes your existing debt a bigger proportion of your remaining credit. For example: You owe a total of $2,000 on four credit cards, each with a $2,000 limit. Your total limit is $8,000, and your balance ($2,000) is 25%. If you transfer all your balances to two cards and cancel the other two, your total credit limit is now $4,000 and that same $2,000 balance is now 50% of the limit. This would lower your score. Pay down your credit card debt 30% of your credit score is based on outstanding debt, so paying down your balances will have a big and positive impact. Plus, lowering your overall debt greatly assists you on your path to homeownership and helps you qualify for better mortgage terms. If you need extra help getting your debt under control, our homeownership counselors can also refer you to additional services. If I m going to buy a home I m really going to have to sort out my credit. Hi, I d like to meet with a homeownership counselor! Neighborhood Housing Services of Greater Cleveland (NHSGC) 16
Case Studies Name: Darius (Buddy) A. Age: 34 Profession: Musician/Guitar Amp Technician Status: Married with a 1-year-old daughter Counseling agency: Neighborhood Housing Services of Greater Cleveland (NHSGC) First contact with NHSGC: August 21, 2012 Loan closing: January 9, 2013 Credit score at beginning: 659 Credit score at closing: 704 Lender: US Bank Price of home: $100,000 Amount of loan: $81,000 Down payment subsidy: Received $20,000 of Neighborhood Stabilization Program. 100% forgivable after 10 years of owner occupied residency, 10 year tax abatement. Name: Nikita Age: 33 Profession: Case Administrator Status: Single parent to a 5-yearold son Counseling agency: Neighborhood Housing Services of Greater Cleveland First contact with NHSGC: March 23, 2010 Loan closing: April 1, 2011 Credit score at beginning: 614 Credit score at closing: 735 Lender: Dollar Bank Price of home: $168,000 Amount of loan: $163,000 Down payment subsidy: Received $3,300 through Dollar Bank s 3 2 1 Match program Mothers for Mortgages. Homebuyer Handbook 17
FAQs Q: How long does the prepurchase counseling take? A: After all required education courses are complete, one-on-one counseling sessions are scheduled to address the specific financial profile of each participant. The period between the first workshop and loan closing can take anywhere between one month to one year depending on individual circumstances. Q: How do I qualify for closing cost assistance or down payment subsidies? A: Each applicant for down payment assistance will need to complete all four homebuyer education classes. Savings (Capital) can vary from program to program. Your counselor will assist you in maximizing the amount of assistance you can receive. This is covered in more detail during the orientation. Q: What does NHSGC s service cost? A: There is no charge to you. However, as the economy changes, this may change in the future. Please call to inquire. Q: How does NHSGC help homeowners? A: In 2011 2012, NHSGC assisted nearly 700 clients with homebuyer education programs, helped 100 homebuyer education graduates purchase a home and also provided $227,000 in downpayment assistance which leveraged over $1.5 million in new investments. They also provided foreclosure prevention assistance to over 1,000 clients. Neighborhood Housing Services of Greater Cleveland (NHSGC) 18
Credits This handbook is made in partnership with: Through the generous support of: Funded by Leveraging Investments in Creativity (LINC) which receives support from The Ford Foundation and The Kresge Foundation The Homebuyer Handbook prototype was developed in conjunction with: Homebuyer Handbook 19
Contact NHSGC if you are interested in owning a home call today! 5700 Broadway Avenue, Cleveland, OH 44127 Phone: 216.458.4663 www.nhscleveland.org