8. BASIC MORTGAGE MATH
The maximum amount a lender will
loan based on constraints including
income, debt and available cash.
Home Sales Price
x Loan to Value
(LTV)%
______________________
Maximum Loan Amount
11. MORTGAGE DEFINITIONS YOU
SHOULD KNOW….
PRINCIPAL-is the amount of money that
you actually borrow or the amount of the
loan that is still unpaid
INTEREST- is the charge for using the
lenders money.
FIXED-RATE MORTGAGE LOAN- means
you will always pay the same rate on
interest
12. MORTGAGE TERMS YOU
SHOULD KNOW
ADJUSTABLE RATE MORTGAGE -
means your rate will increase or
decrease once or twice a year.
TERM- is the amount of time you have
to repay the loan.
POINTS - refer to the type of fee the
lender may charge.
13. MORTGAGE TERMS YOU
SHOULD KNOW
DOWNPAYMENT REQUIREMENT- is the
lenders lowest allowable down payment
and is part of the purchase price that
the buyer pays in cash.
CLOSING COST-are the expenses buyers
and sellers pay to transfer ownership of
a home.
15. How do you choose the right
Mortgage?
How many years do you expect to
live in your home?
How important it it to be free of
mortgage debt before facing long
term financial commitments?
How comfortable are you with the
certainty of a fixed mortgage
payment versus a payment that
can change over time.?
16. How do you choose the right
Mortgage?
How many years do you expect to
live in your home?
How important it it to be free of
mortgage debt before facing long
term financial commitments?
How comfortable are you with the
certainty of a fixed mortgage
payment versus a payment that
can change over time.?
17. FEATURES OF A FIXED-RATE
MORTGAGE
Easiest Fixed-rate loan to
qualify for
Most poplar
Best chance to keep
monthly mortgage
payments low
18. Advantages of Fixed-Rate
Mortgages
Interest Rate will remain the same for the life
of the loan.
Monthly mortgage payments will be stable
Predictable monthly mortgage payments
19. 30 year-Fixed Rate Mortgage
Easiest fixed rate loan to qualify
for
Most popular
Best chance to keep monthly
mortgage payments down
20. 20 year Fixed Rate Mortgage
Amortizes over a 20 year period
Offers the opportunity to own your
home debt-free sooner
Monthly payments somewhat
higher than a 30 year mortgage
21. 15 year Fixed Rate Mortgage
Offers lower interest rate than a 20
year fixed rate mortgage and a 30
year fixed rate mortgage
Initial monthly payments will be
lower
Interest rate changes are subjected
to two caps, one for each
adjustment period and one for life
of your loan
23. Interest Rate changes are
always tied to a financial
index. Three most popular are:
Treasury-Indexed ARMs
CD-Indexed ARMs
Cost of Funds-Indexed ARMs
24. Treasury-Indexed ARMs
Indexed to a six-month, one
year or three year Treasury bills
or securities
Your interest rate will adjust to
one of the terms you choose (6
month, 1 year, 3 year)
25. CD-Indexed ARMs
Adjust to a Certificate of Deposit
(CD) index
Rate adjustments typically occur
every six months, with a per cap
adjustment of 1 percent
27. Costs of Funds Indexed ARMs
Indexed to actual costs a particular
group of lending institutions pays to
a borrower
Lenders using this index can adjust
mortgage rates monthly, every six
months or annually
Most popular: Cost of Funds Index
for the 11th Federal Home Loan
Bank District of San Francisco
29. Two-Step ARM
ARM that adjust one time
The first adjustment would
happen at five years and the
maintains a fixed rate
mortgage for the remaining 23
or 25 years of a 30 year
mortgage term.
31. BEWARE!
Offers lower interest rates
for shorter term - usually
financing 5,7 or 10 years.
At the end of this loan term
Balloon mortgages require
refinancing or paying off
the outstanding balance
33. Loan Terms You Should Know:
Annual Percentage Rate – shows costs of
loan expressed as a yearly interest rate.
Commitment Letter – stating your loan has
been approved.
Contingency – events that must happen
prior to closing.
34. LOAN TERMS YOU SHOULD
KNOW:
Conventional Mortgage – any mortgage that
is not insured by the Federal Government
Debt-to-Income Ratio- Percentage of total
debt payments to income.
Deed- legal document conveying property
Discount Point – equivalent to 1% of the
purchase price.
35. LOAN TERMS YOU SHOULD
KNOW:
Down payment – part of the purchase price
that the borrower pays in cash.
Earnest Money – Money put down by a
potential buyer to show that he or she is
serious
Equity – owner’s financial interest in a
property.
42. 42
Writing down your goals
Easily visible
Keep it simple
30 Day Challenge
Review and adjust
Fail to plan – Plan to fail
Keys to Successful MoneyKeys to Successful Money
ManagementManagement
43. 43
What Kind of Spender Are You?
The Miser - hoarding, stingy person
The Conservative - moderate, cautious
The Carefree - spends without care
The Big Spender – very generous
The Over spender - spending beyond limits
44. 44
30 Days to Success
Live Normal for 30 days
Track each expense – keep every receipt
Evaluate after 30 days
Create 30 day financial spending plan
Can’t Fail – simply adjust!
45. 45
Why Manage Your Money?
Prepares you for large expenses
Identifies wasteful spending
Keeps control of financial future
Encourages savings
Strengthens loan application
Helps to accomplish goals
46. 46
Three Steps to Planning a Budget
1. Write down your income
2. Write down your monthly expenses
3. Decide what to do with leftover
money
47. 47
What are Some Money
Management Tips?
Plan according to current income
Plan ahead for six months
Include spending money for all
Keep record-keeping simple
Set money aside for emergencies
Get consensus from entire family
Pay yourself first at least 10% of
take-home pay
48. 48
Tips for Savers
Pay yourself first
Open a savings account
Save change at end of day
49. 49
Review the Plan
Is your budget working?
Are all family members able to follow it?
Which costs always seem to be over
budget?
Are we getting closer to reaching our
goals?
50. 50
What Are Ways to Make Money
Management Easier?
Carry written reminders of goals with you
Carry as little cash as possible
Use direct deposit
Put items on layaway
Buy only what you need
51. 51
Spending Pie Chart (1)
Desired
Living
Entertainment
Savings/Investmen
t
Retirement
60%
15%
10%
15%
54. 54
Why is Good Credit
Important?
To rent, buy or purchase things you
want or need
To save money by borrowing at a
lower interest rate
To obtain a job
To lease rental property
65. 65
How Long Does Information
Stay?
Bankruptcy 10 years
Judgments 7 years
Tax Lien 7 years
Collection, Charge-Off 7 years
Most Adverse Info 7 years
Inquiries 2 years
66. 66
What Are the Main Credit
Bureaus?
Experian
www.experian.com
(888) EXPERIAN (397-3742)
Trans Union
www.tuc.com
(800) 916-8800
Equifax
www.equifax.com
(800) 685-1111
67. 67
Equal Credit Opportunity Act
Prevents lender’s discrimination
on the basis of age, sex, race,
marital status, religion or
national origin
Requires written disclosure of
reason for denial within 30
days
68. 68
Fair Credit Billing Act
Provides right to question if you
think your credit card bill is
wrong within 60 days
Requires creditor to begin
research within 30 days
Requires creditors to supply an
answer within 90 days
69. 69
Fair Credit Reporting Act
Protects your rights to know
what is in your credit report
and to fix mistakes
70. 70
Credit Summary
Credit is a useful tool
Order your report
Correct mistakes and fix
problems
Protect your credit rating
Manage your debts, so they
don’t manage you
72. 72
Foreclosure Process
California Process
Judicial
Non-judicial
Foreclosure Process Flowchart
Alternatives
Loss Mitigation
Modification
Deed in Lieu of Foreclosure
Repayment Plan
Pre-foreclosure Sale
73. 73
BUYING FORECLOSURES
When to buy foreclosures
Before the auction (Pre-foreclosure)
At the auction
After the auction (REO)
74. 74
What Are My Alternatives?
Special forbearance
Mortgage modification
Partial claim
Pre-foreclosure sale
Deed-in-lieu of foreclosure
75. 75
Precautions
Don’t sign papers you don’t fully understand
Make sure you get all promises in writing
Beware of any loans you are not formally
released from liability of your mortgage debt
and contracts of sale
Check with an attorney or your mortgage company
before entering into any deals involving your home
76. 76
Main Points to Remember
Make your monthly payments on time.
Contact your mortgage lender immediately and be
honest about your financial situation.
Have a plan to cure delinquency
Arrange an appointment with a HUD-approved
housing counseling agency www.hud.gov
78. 78
Protecting Your Investment
Types of Insurance
Homeownership Tips
Your Community
1. Police
2. Fire
3. Others in your community
79. 79
Types of Insurance
Hazard Insurance
Flood Insurance
Special Hazard Insurance
Mortgage Insurance
80. 80
Referred to as “Fire”
Insurance
Required by the Lender
Protects against hazards such
as fires or storms
HAZARD INSURANCE
81. 81
Liability Protection
Legal responsibility for any injuries or
property damage the owner or a family
member causes to other people
Protection of the other structures and the
homes contents
Living expenses, if displaced
HOMEOWNER’S INSURANCE
82. 82
Homeowner’s Insurance Features
Dwelling coverage
Other structures
Personal property
Loss of use
Personal liability
Medical payments coverage
Deductible
83. 83
FLOOD INSURANCE
Required by lender if the property is
located in a flood zone
Generally not covered under hazard or
homeowners insurance policy
Protects during heavy rain, failed
dams and inadequate drainage
systems
84. 84
MORTGAGE INSURANCE
Protects the lender in case the
borrower defaults and the lender must
foreclose
Generally required if the
downpayment is less than 20% of the
purchase price.
86. 86
MORTGAGE LIFE INSURANCE
Life insurance policy that pays off the
borrowers mortgage in the event of
death
Allows family to continue to live in the
property
Always optional
87. 87
HOME WARRANTY POLICY
Protects the homeowner in the event of
costly repairs
Covers items such as heating, plumbing,
air conditioning
Annual Premium (renewable)
Flat fee per service
Buyer may request seller provide
policy
88. 88
Know Your Community
Meet your neighbors
Read weekly community newspapers
Accept the Welcome Wagon
Visit city, town hall and library
Volunteer for special events
Attend neighborhood association
meetings
89. 89
Know Your Community
Police Department
Where is the nearest station
Fire Station
Which station services your area
Hospital
Where is the nearest hospital
Elected Officials
Who are your representatives
Slides 2 – 5 9:15 – 10:00 am Don’t over complicate it – Document major short term and long term goals (i.e. to pay 50% on Sears and Providian instead of “get out of debt” Monitor spending habits to determine where adjustments can be made Develop a family spending plan with flexibility – allow for adjustments for unexpected expenses A documented plan is better than mental plans, road maps are a great starting point to get where you want to go
Slides 2 – 5 9:15 – 10:00 am Misers tend to be savers Conservatives while more cautious do not lean toward savings Carefree, Big Spenders and Over Spenders are do not save and throw caution to the wind, but can change with documented planning
Slides 2 – 5 9:15 – 10:00 am Monitor your normal spending habits w/o budget Keeping every receipt will help categorize spending Review spending to see where largest expendatures and possible cuts can be made Create a ‘spending improvement plan’ to concentrate on previously identifid areas Review every 30 days at minimum – can be more frequently if necessary. This will allow for adjustments to meet documented goals
10 am – 11am Budgeting including exercises and participation Ask participants what they spend on a monthly basis for the above areas If they cannot tell you, emphasize the need for tracking This is a sample of successful money management expenditures
10 am – 11am 15 min break 11:00 – 11:15am Actual average expenditures
11:15 – 12:30 35% Credit History 30% Balance to limit ratio 15% History 10% Inquiry 10% Credit Mix 4 C’s of Credit Credit Capital Capacity Collateral Obtaining credit scores – see resource guide www.experian.com www.transunion.com www.equifax.com Tips for maintaining a good score: Pull credit on your own (1 to 2 times per year) Subscription to credit monitoring service Fraud alerts and “Do Not Extend” Statements Use reputable agencies such as CCCS for debt management and repair
12:30 – 1:45 Loss Mitigation Game, Flowchart, Explanations Statistics/handout 1:45 – 2:00 break Review foreclosure process – (see flow chart) 30 days – letter 90 days – Notice of Default (NOD) recorded – this gives borrower an additional 90 days to cure delinquency Trustees sale must be advertised in minimum of three publications (Public Notice) 21 days after expiration of NOD Trustees Sale may take place After NOD expires, property can be redeemed by paying the total amount of past due including attorneys fees, publications fees, etc Alternatives Modification includes changing terms of original mortgage Interest rate reduction Extension of term (i.e. adding 10 yrs to mortgage term) Adding past due amount to end of mortgage and re-amortizing loan Deed in Lieu – Signing property over to bank or mortgage company Repayment Plan – taking past due payments and dividing them up, then adding them to future payments Selling property prior to Trustees sale
1 hour left – 2pm – 3pm cover remaining topics!!! 3:00 pm start prep for departure/closeout after quick break – 10 minutes or less Slide 10 – 10 minutes Notice of default publications – newspapers and F/C services (this also includes contacting buyers via letter, phone or even door to door) At the auction – usually requires cash at the day of trustees sale After the auction – REO properties are forwarded to Brokers for final disposition on the open market, including MLS
Explain difference between fire and homeowners insurance (see word doc as handout and flip chart) Explain the fact of being under insured can be as detrimental as no insurance at all Replacement cost at current cost building materials and labor – these costs increase with inflation and should be updated annually Develop relationship with Police and Fire Departments (may include free evaluation by firefighters and officers at your home) FIRE Smoke alarms and ladders Fire-proof your home (brush clearance) Fire Sprinklers and extinguishers POLICE Burglar proof your home Windows, Doors and external lighting Eliminate obvious invitations Slides 2 – 5 9:15 – 10:00 am