Buying A Home In Todays Market
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Buying A Home In Todays Market
- 2. Buying A Home In Today’s Market Making Smart Moves January 6, 2010 Jonathan Osman Keller Williams Realty (704) 960-1725 Ext 100 Presented By: Liz Ciardi Wells Fargo Home Mortgage (704) 756-4059
- 5. Question #1 Is this a good time to buy a home? “ Don’t worry about timing the market in real estate. It’s time in the market that will matter for you.” — David Bach #1 best selling author and financial coach
- 10. Even though rates have declined in the last decade, interest rates may rise again. Is this a good time to buy a home? Mortgage rates remain historically low
- 12. Question #2: Is my credit good enough? “ Your credit score is ... the Holy Grail... Knowing how you rate is essential knowledge for anyone even thinking of getting a mortgage.” — David Bach #1 best selling author and financial coach
- 16. Question #3 How much money do I need? “ When it comes to investing in real estate, the bottom line isn’t how much houses cost. It’s how much you can afford to spend.” — David Bach #1 best selling author and financial coach
- 19. How much money do I need? Monthly Payment Illustration: $150,000 purchase price. FIND THE PURCHASE PRICE(s) FOR YOUR MARKET IN THE APPENDIX The higher your down payment, the lower your monthly payment. 8. Assumes a 30-year fixed-rate mortgage with a 5% interest rate. Mortgage insurance is generally required if the down payment is less than 20% and is not included in the monthly payments above. 5% 15% 20% % Down Payment $764.97 $142,500 $7,500 $684.45 $127,500 $22,500 $644.19 $120,000 $30,000 Monthly Principal and Interest 8 Mortgage Amount Down Payment in Dollars
- 24. Question #4 What type of mortgage should I get? “ There are literally thousands of different kinds of mortgages to choose from. The question is, which one is the right fit for you?” — David Bach #1 best selling author and financial coach
- 33. Question #5 What is the home buying process? “ The fact is that home buying is both easier and more straightforward than most people realize.” — David Bach #1 best selling author and financial coach
- 47. APPENDIX: Attention Presenter : choose the most appropriate price point for your market from the following slides and substitute for slide #19.
- 48. How much money do I need for a down payment? Monthly Payment Illustration: $80,000 purchase price. The higher your down payment, the lower your monthly payment. 8. Assumes a 30-year fixed-rate mortgage with a 6.25% interest rate. Mortgage insurance is generally required if the down payment is less than 20% and is not included in the monthly payments above. 5% 15% 20% % Down Payment 468 $76,000 $4,000 $419 $68,000 $12,000 $394 $64,000 $16,000 Monthly Principal and Interest 8 Mortgage Amount Down Payment in Dollars
- 49. How much money do I need for a down payment? The higher your down payment, the lower your monthly payment. Monthly Payment Illustration: $150,000 purchase price. 8. Assumes a 30-year fixed-rate mortgage with a 6.25% interest rate. Mortgage insurance is generally required if the down payment is less than 20% and is not included in the monthly payments above. 5% 15% 20% % Down Payment $877 $142,500. $7,500. $785 $127,500. $22,500. $739 $120,000. $30,000. Monthly Principal and Interest 8 Mortgage Amount Down Payment in Dollars
- 50. How much money do I need for a down payment? The higher your down payment, the lower your monthly payment. Monthly Payment Illustration: $200,000 purchase price. 8. Assumes a 30-year fixed-rate mortgage with a 6.25% interest rate. Mortgage insurance is generally required if the down payment is less than 20% and is not included in the monthly payments above. 5% 15% 20% % Down Payment $1,170 $190,000 $10,000 $1,047 $170,000 $30,000 $985 $160,000 $40,000 Monthly Principal and Interest 8 Mortgage Amount Down Payment in Dollars
- 51. How much money do I need for a down payment? The higher your down payment, the lower your monthly payment. Monthly Payment Illustration: $300,000 purchase price. 8. Assumes a 30-year fixed-rate mortgage with a 6.25% interest rate. Mortgage insurance is generally required if the down payment is less than 20% and is not included in the monthly payments above. 5% 15% 20% % Down Payment $1,755 $285,000 $15,000 $1,570 $255,000 $45,000 $1,478 $240,000 $60,000 Monthly Principal and Interest 8 Mortgage Amount Down Payment in Dollars
- 52. How much money do I need for a down payment? The higher your down payment, the lower your monthly payment. Monthly Payment Illustration: $500,000 purchase price. 8. Assumes a 30-year fixed-rate mortgage with a 6.25% interest rate. Mortgage insurance is generally required if the down payment is less than 20% and is not included in the monthly payments above. 5% 15% 20% % Down Payment $2,925 $475,000 $25,000 $2,617 $425,000 $75,000 $2,463 $400,000 $100,000 Monthly Principal and Interest 8 Mortgage Amount Down Payment in Dollars
Notas del editor
- Slide 1 Read through this entire presentation prior to your event, including “Notes Pages.” You will need to customize the following slides: Slide 2: Complete with your information. Slide 8: Choose the appropriate descriptors of your local market. Slide 19: The Appendix contains a number of price point versions. Choose the one that best fits your market and delete the remaining unused slides from the Appendix. Slide 21: Complete the information identified in RED. Invite real estate agents and/or builders to attend your event and provide area listings suitable for first-time buyers at a variety of price points. (not in the banks) NOTE: If the Workshop is being held in a bank store, this is not allowable. Make arrangements for post-presentation consultation sessions (privacy, internet connection, 1 HMC for every 5 attendees) Have Priority Buyer® Preapproval paper available to print out preapproval letters Bring First Home ® Purchase Plans to help buyers who may not be ready to be preapproved During the presentation: Engage your audience by asking for their ideas and input. Pause periodically to take questions. NOTE: Be sure to delete this slide before your presentation.
- Slide 2 Display this screen while people are entering the room, but be sure to personalize it! Any co-sponsor on this page will need to either assist in the co-creation and promotion of the workshop and must provide part of the cost of the event to comply with RESPA. Referral Sources/Clients who just attend the workshop and provide a table/break out with their listings at the end of the workshop do not need to be included as a co-sponsor, especially if multiple agents/brokerages are in attendance. <<Remember, if the workshop is being held in a bank store, referral sources aren’t allowed to participate.>>
- Slide 3 Thank you all for coming today (tonight). And Congratulations! By attending this workshop, you are taking an important step toward making educated decisions about homeownership. You’re smart because making educated decisions is very important. As we’ve learned over the past few months as the mortgage industry has been front-and-center in the news, it’s very important to understand as much as possible about finding and financing the home that’s right for you. <<Introduce yourself and any co-sponsors, explain what you do, what your role means to them and provide them with your level of experience>> Today (tonight) you’ll learn answers to common questions about homebuying decisions and processes. And you’ll have an opportunity to ask your own questions or discuss your concerns with a Wells Fargo Home Mortgage consultant (and a real estate or builder professional). What would they most like to learn today.>>
- Slide 4 I’ve been a Home Mortgage Consultant for [insert years/months, etc.] and through that time, I’ve found there are some common questions most people have about buying a home. Today (tonight) we’ll discuss these in an effort to give you some clear answers.
- Slide 5 This first question is especially important right now. We’ve all read the newspapers and heard about the problems over the past few months. And, I know it’s top of mind for all of you. We’ll talk about a few facts and figures that demonstrate the possible benefits of buying a home in today’s market. Ultimately, though, the answer to this question could be different for everyone in this room. It all depends on your individual situation. Let’s take a look at some information.
- Slide 6 Before looking at today’s circumstances, let’s first look at a few statistics to see whether or not homebuying is a sensible thing to do for long-term financial success. This chart divides Americans aged 30 to 59 into two groups – those who own their own homes, and those who rent. You can see here that the average net wealth of the owners is just under a half-million dollars. While renters have an average of only $73,000. So homeowners hold six times the wealth, on average, as renters. That’s because anybody paying down their mortgage loan is building home equity in their property – generally, an increasing amount of your monthly mortgage payment represents wealth that you get to keep. You won’t find that in your rent checks. So, in building financial security, what really counts is long-term homeownership. Or, to put it another way, it’s not timing the market that’s important, it’s time in the market.
- Slide 7 Let’s look at this a bit further. This chart shows how the price of the typical 1975 home has performed over the past 30 or so years. And it’s quite a story – the typical American home has increased in value by 532% over the years. The averages show that a home worth $175,000 in 1975 would now be worth $948,000 – almost a million dollars! The 32 years in between have had economic expansions and recessions, periods of high home price appreciation, and periods of low home price appreciation. Of course, nobody can say anything definitive about the home price appreciation you’ll experience with the home you purchase. But history is on the side of rising home prices. And remember – you have to write either a rent check or a mortgage check every month. As a renter, you build no home equity, and your landlord gets to keep any home price appreciation. So, over the long-term, history shows that homeownership does offer valuable opportunities.
- Slide 8 The past couple of slides have shown you some national averages of home prices. But while we have national averages, we certainly don’t have a “national housing market.” Instead, it’s more accurate to think of the U.S. as a collection of some 400 or 500 individual, local markets. <<This is where you need to discuss the individual characteristics and nuances of your local market. Be sure to collaborate with real estate professionals in your area to determine this information.>>
- Slide 9 In most areas, housing inventories are up – that means there are more homes for homebuyers to choose from than there was, say, five years ago. More inventory means sellers are more willing to make concessions and bargain over a final price. It’s part of the housing cycle we’re in today, just as it was a seller’s market a few years ago. Let’s talk a moment about the incentives Uncle Sam has given you in buying and owning a home. While these considerations vary depending on an individual’s specific tax circumstances, most homeowners can deduct the mortgage interest and property taxes. You need to discuss this with your tax advisor.
- Slide 10 Another important consideration today is the low level of mortgage rates. Over the past 40 years, it hasn’t been often that they’ve been lower than where they are today. This chart shows the path of the most common mortgage rate since 1972, and you can see that today’s rate of about <<cite current figure >> is very favorable, historically speaking. And speaking of history, look at this big bump in mortgage rates – up to about 18% in the early 1980s. Why? It was because of the high inflation we were suffering at the time. The point to remember is that if inflation today gets significantly out of hand, financial markets will push up mortgage rates.
- Slide 11 Let’s review our answers to the first question – Is this a good time to buy a house? We’ve talked about how history has shown that home ownership can be a good long-term investment and that it’s about time IN the market rather than timing the market. We’ve talked about the nuances of our local real estate market and that in many cases it’s a buyers market right now. We’ve also discussed the historically low mortgage rates and touched on the tax advantages of buying a home. Hopefully, this discussion has helped you think through the answer, but – as mentioned at the beginning of the section - ultimately, the answer to this question is different for each of us. It all depends on your individual situation. The Action Items listed on this slide demonstrate that we are here to help you determine your answer. These are just a few examples of how we can help. Does anyone have any questions at this point? <<Count to 10 to give them time to ask questions.>> By the way, at the end of each section, we will have an Action Item list to summarize next steps. Let’s go on to the next question.
- Slide 12 Your credit history is an important factor in buying a home – as it is with many other financial actions these days. In this section, we’ll explore the importance of credit to clear up some of the mystery surrounding the credit score.
- Slide 13 Because of the recent issues with the housing and mortgage market, lending guidelines have changed significantly. And, one area where things have changed is credit history – so this is a very timely question. I’m sure you’ve all heard the term “credit score” and some of you may even know your credit score. But why is it so important for home financing? Well, when you apply for a mortgage, you’re asking to borrow a significant amount of money. And, naturally, the lender wants to know you are both willing and able to pay that loan back. That’s why we look at your credit report and credit score to see how you’ve handled payments on consumer debt. What you’ve done in the past is an indication of what you will do in the future. But, keep in mind you still don’t need perfect credit to buy a home.
- Slide 14 So what makes credit less than perfect? Some people have less-than-perfect credit because unexpected life events caused them to fall behind on their bill payments in the past – illness and gaps in employment, are a couple of the common examples. If this is your situation, you might want to consider getting one or two credit cards that you use and pay off faithfully Some loan program guidelines allow us to consider alternative credit histories of rent and utility payments. If this is your situation, be sure to save receipts and cancelled checks.
- Slide 15 So lets review, how did we do in answering the question – Is my credit good enough? Hopefully we’ve provided some background information that should make it easier to determine your own personal answer to the question. Your next step is to sit down with a home mortgage consultant and review your financial situation. And, if you think you may have a credit issue, don’t jump to any immediate conclusions. Your credit may not be as bad as you think, and by working with a lender who does both prime and non-prime lending, After reviewing your credit, if you decide to wait for a home purchase, we can help you complete a Purchase Plan to give you personalized action items you can take to get ready as soon as possible. Does anyone have any questions at this point? <<Count to 10 to give them time to ask questions.>>
- Slide 16 Our next topic focuses on the funds needed to buy a house.
- Slide 17 When considering how much money you’ll need for your home purchase, there are three primary areas to consider. On the day of closing, you’ll bring a check to cover the down payment and closing costs. The down payment is the portion of the home’s purchase price that you pay out of your own pocket. Closing costs are expenses related to obtaining the loan and the property’s ownership transfer. After closing, you’ll be making monthly payments for the duration of the loan. In this section, we’ll cover all three.
- Slide 18 The amount of your down payment is a big question when it comes to buying a home. You need to decide what amount is right for you. In many cases, the lender will require a minimum down payment. Which is usually driven by factors such as your credit score and the type and purpose of the property you’re purchasing. It’s important to remember that you have options when it comes to determining how much of a down payment you’ll make on the home. You’ll want to consider cash on hand in a bank account, but there could be other sources of funds available. Your home mortgage consultant can give you a list of acceptable funds sources. While a low down payment can help you get into a home sooner, making a larger down payment may be a good option because it can reduce your monthly payment. Let’s take a look at the next slide for details.
- Slide 19 <<SELECT WHICH OF THESE SLIDES BEST FITS YOUR LOCAL MARKET. DELETE THE SLIDES WHICH ARE NOT AS REPRESENTATIVE.>> As you can see on this chart, to buy a $80,000 home with a 15% down payment, you would need to have $12,000 That’s a huge amount for most people and it could discourage a renter into thinking “I can’t buy a home, because I don’t have the down payment” While a lower down payment means higher mortgage amount and higher monthly payment amounts, many people find it easier to make monthly payments than save up a large lump sum for a down payment. At Wells Fargo Home Mortgage, we offer a variety of home financing solutions, including some low down payment programs. Be sure to ask about FHA financing because of the lower down payment options associated with the program.
- Slide 21 As we previously discussed, closing costs are expenses related to obtaining the loan and the property’s ownership transfer. At the closing, you’ll bring a cashier’s check with a pre-specified amount to cover these costs. <<INSERT THE AVERAGE HOME PRICE FOR YOUR MARKET. INSERT A ROUGH PERCENTAGE FOR CLOSING COSTS IN YOUR AREA. USE THOSE TO CALCULATE THE TYPICAL DOLLAR AMOUNT.>> In our area, you can expect to pay X for your closing costs. Here’s an idea of what that includes. The closing cost total includes both Fees and Pre-paids. Fees usually include costs related to your loan – such as origination and appraisal fees. Also, it includes costs related to transferring the ownership of the property – such as survey and title fees. Pre-paids are actually ongoing costs that you are paying up front at closing. This includes the cost of setting up a fund for your taxes and insurance. An important component of pre-paids is the interim interest. This amount varies with the number of days between closing and your first payment date – so it changes whenever your closing date changes.
- Slide 22 Choosing a payment amount that works for you is a first step The next step is selecting a loan program that will be workable for your needs
- Slide 24 Many homebuyers are so concerned with getting the lowest interest rate, they neglect to consider the importance of getting a mortgage that serves their specific needs It is important that you understand the financing you receive and that you can weigh the benefits and risks associated with that mortgage
- Slide 28 For example, you will need to decide if you want a fixed rate or adjustable rate loan A fixed rate loan may start out with a slightly higher interest rate and higher payments, but the benefit of a fixed rate loan is that the interest rate and payments will stay the same over the life of the loan If you plan to stay in your home for many years and the thought of payments that change concern you, then a fixed rate mortgage will provide the stability of an interest rate that will never change An adjustable rate loan, on the other hand, may have a start rate that is lower than a fixed rate mortgage, so your initial monthly payments may be lower The risk is: when interest rates change, and your introductory period expires, your mortgage payment will change as well. In some cases, it can increase by a substantial amount. But if you plan to move soon – or are open to refinancing if it becomes financially prudent to do so – an ARM can be better for you than a fixed rate mortgage. Let’s look at another financing decision that you’ll need to make
- Slide 29 Another decision that you will need to make is how long you want your loan term to be. The longer your loan term, the lower your monthly payment, which is what people usually like about having an extended term. It can help you purchase a more expensive home. However, a shorter term requires you to pay less interest over the life of your loan. You may not care about this if you plan to move soon. But if you intend to stay in your first home for the long haul, you may want to think about “stretching” to pay for the shortest term you can qualify for
- Slide 30 Principal & Interest vs. Interest-Only Most buyers want to someday own their home free and clear or make a profit when they sell. Making principal and interest payments helps achieve this goal. Others want to keep their monthly payments low by paying interest-only, but use their annual bonus to pay down the principal. Be Careful: As long as you make payments that are interest only, you are never paying off your loan amount. Because interest-only payments never increased your equity through principal paydowns, a decline in property value would be more damaging.
- Slide 31 There are minimal documentation financing programs for those qualified who want it. However, In certain circumstances, you may be required to provide documentation. Please ask a Wells Fargo Home Mortgage consultant for details. Depending on their specifics, programs that do not require the standard information and documents may result in higher interest rates and Annual Percentage Rates than a traditional mortgage program.
- Slide 34 So let’s talk about what you need to do: The first thing is to find a mortgage consultant and real estate professional to help you through the process. They’ll let you know what to expect and help make your path to homeownership a smooth one. Factors such as lower income, multi-job employment, no down payment, self-employment, hard-to-document income and less-than-perfect credit can make the process more complicated Be sure to express any concerns you may have up front and allow your home mortgage consultant to show you some programs which may help And attending a workshop like this is key to educating yourself so that you are more confident and understand the process
- Slide 37 After you have looked at several homes, you will most likely be ready to make an offer Just remember, your real estate agent is an invaluable resource. They can provide you with current sales information on homes similar to yours in the area and will help you write up an offer. When you make the offer, you will be required to make a partial down payment deposit often called an “earnest money” deposit to show your offer is a serious one Your agent will be able to advise you on how much of a deposit you may need to make
- Slide 38 Once you and the seller have agreed on the price and conditions for sale (closing date, repairs, inspection schedule, etc) your offer will be considered approved. At this point, you will need to contact your lender and provide them with the property address and details of the purchase. Your lender will then issue a Good Faith Estimate that will provide you with an estimated closing cost amount The final amount of closing costs needed will be provided just prior to your closing. In addition, your Good Faith Estimate will include an estimated monthly payment amount. Your Lender will also issue an approval letter which will state the conditions that need to be met prior to closing on your loan and purchasing the home
- Slide 39 It is always a good idea to get a professional inspection for the home you are purchasing. In most cases, your lender will require an inspection as part of the loan approval process The inspection will help identify any issues that may exist with the property Major repairs identified as part of the inspection may become negotiating points with the seller Your real estate agent will be able to recommend some inspectors In addition, your lender will want to have the home appraised to determine the fair market value of the property
- Slide 40 Once you have met all the conditions of closing you will be ready to move forward Just before the closing, the closing agent will contact you and go over the details of closing including how much you will need to bring to the closing table At this point, you and your real estate agent will want to take one last walk-through of the property prior to closing on the sale of the home You’ll want to make certain that all repairs have been made, that the home has been emptied of the previous owner’s belongings and that it has been swept clean
- Slide 41 When you get to the closing table you will be presented with many different forms. Take your time and read through everything carefully. Feel free to ask questions. You will be asked to provide the remainder of the downpayment and any non-financed closing costs. You will be asked to sign the loan and sale documents and then the keys will be turned over to you Congratulations! This is a major accomplishment!
- Slide 43 So let’s review Your first order of business when you get ready to buy a home should be to get a Priority Buyer preapproval, so you know your home price range If you aren’t ready to get preapproved, consider discussing a prequalification with a home mortgage consultant. This will give you an idea of how much you can pay for a home. Then, start looking to see what that approval amount translates into in this area Remember, you may need to lower your expectations and may need to be willing to make some concessions in order to break out of the rent rut
- Slide 45 At Wells Fargo Home Mortgage, we consider a closing to be just one milestone in our relationship with you We not only want to help you buy your home, but we want to help you stay in your home and enjoy it And we offer a number of repayment programs to help you stay on top of your payments and even pay off your loan faster. We offer automatic payments and bi-weekly payment programs free of charge. Our biweekly payment program includes options that can help pay down your loan faster and save you money over the life of the loan. Ask your home mortgage consultant for more information
- Slide 46 Well, I hope I’ve provided you with enough information so that you understand more about the road to homeownerhip. As we wrap up here, I’d like to invite you once again to sit down with one of our home mortgage consultants to discuss P riority Buyer Preapproval or a First Home Purchase Plan If you do not have time today, please consider setting up an appointment with us. You will also find some of the area’s real estate agents and builders available through out the room to discuss home listing with you. Any questions before we break?
- Slide 48 <<SELECT WHICH OF THESE SLIDES BEST FIT YOUR LOCAL MARKET. DELETE THE SLIDES WHICH ARE NOT AS REPRESENTATIVE>> As you can see on this chart, to buy a $80,000 home with a 15% down payment, you would need to have $12,000 That’s a huge amount for most people and it could discourage a renter into thinking “I can’t buy a home, because I don’t have the down payment” While a lower down payment means higher mortgage amount and higher monthly payment amounts, many people find it easier to make monthly payments than save up a large lump sum for a down payment. At Wells Fargo Home Mortgage, we offer a variety of home financing solutions, including some low down payment programs. Be sure to ask about FHA financing because of the lower down payment options associated with the program.
- Slide 49 <<SELECT WHICH OF THESE SLIDES BEST FIT YOUR LOCAL MARKET. DELETE THE SLIDES WHICH ARE NOT AS REPRESENTATIVE>> As you can see on this chart, to buy a $150,000 home with a 15% down payment, you would need to have $22,500 That’s a huge amount for most people and it could discourage a renter into thinking “I can’t buy a home, because I don’t have the down payment” While a lower down payment means higher mortgage amount and higher monthly payment amounts, many people find it easier to make monthly payments than save up a large lump sum for a down payment. At Wells Fargo Home Mortgage, we offer a variety of home financing solutions, including some low down payment programs. Be sure to ask about FHA financing because of the lower down payment options associated with the program.
- Slide 50 <<SELECT WHICH OF THESE SLIDES BEST FIT YOUR LOCAL MARKET. DELETE THE SLIDES WHICH ARE NOT AS REPRESENTATIVE>> As you can see on this chart, to buy a $200,000 home with a 15% down payment, you would need to have $30,000 That’s a huge amount for most people and it could discourage a renter into thinking “I can’t buy a home, because I don’t have the down payment” While a lower down payment means higher mortgage amount and higher monthly payment amounts, many people find it easier to make monthly payments than save up a large lump sum for a down payment. At Wells Fargo Home Mortgage, we offer a variety of home financing solutions, including some low down payment programs. Be sure to ask about FHA financing because of the lower down payment options associated with the program.
- Slide 51 <<SELECT WHICH OF THESE SLIDES BEST FIT YOUR LOCAL MARKET. DELETE THE SLIDES WHICH ARE NOT AS REPRESENTATIVE>> As you can see on this chart, to buy a $300,000 home with a 15% down payment, you would need to have $45,000 That’s a huge amount for most people and it could discourage a renter into thinking “I can’t buy a home, because I don’t have the down payment” While a lower down payment means higher mortgage amount and higher monthly payment amounts, many people find it easier to make monthly payments than save up a large lump sum for a down payment. At Wells Fargo Home Mortgage, we offer a variety of home financing solutions, including some low down payment programs. Be sure to ask about FHA financing because of the lower down payment options associated with the program.
- Slide 52 <<SELECT WHICH OF THESE SLIDES BEST FIT YOUR LOCAL MARKET. DELETE THE SLIDES WHICH ARE NOT AS REPRESENTATIVE>> As you can see on this chart, to buy a $500,000 home with a 15% down payment, you would need to have $75,000 That’s a huge amount for most people and it could discourage a renter into thinking “I can’t buy a home, because I don’t have the down payment” While a lower down payment means higher mortgage amount and higher monthly payment amounts, many people find it easier to make monthly payments than save up a large lump sum for a down payment. At Wells Fargo Home Mortgage, we offer a variety of home financing solutions, including some low down payment programs. Be sure to ask about FHA financing because of the lower down payment options associated with the program.