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The Global Wealth Homeownership and Wealth
Education Initiative

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3. Credit Building Steps
1 Order credit
report
2 Correct errors
3 Be on time!
4 Use credit wisely
5 Create
nontraditional
credit
6 Manage money

4. MORTGAGE BASICS
BASIC MORTGAGE MATH

5. BASIC MORTGAGE MATH
PITI
DEBT RATIO =
__________________
TOTAL MONTHLY INCOME

6. BASIC MORTGAGE MATH
Cash Required
Funds required at closing.
Total Closing Costs
+ Down Payment
___________________
CASH REQUIRED

7. BASIC MORTGAGE MATH
Down Payment
Home Sales Price
- Loan Amount
__________________
Down Payment

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

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10. WHAT IS THE
MORTGAGE
LANGUAGE?

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.

14. Repayment Terms are:
30 year fixed-mortgage
20 year fixed mortgage
15 year fixed mortgage

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

22. ADJUSTABLE RATE
MORTGAGES

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

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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

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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.

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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

32. THE LENDING PROCESS

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.

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Money
Management

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 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

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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

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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!

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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

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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

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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

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Tips for Savers
 Pay yourself first
 Open a savings account
 Save change at end of day

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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?

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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

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Spending Pie Chart (1)
Desired
Living
Entertainment
Savings/Investmen
t
Retirement
60%
15%
10%
15%

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Spending Pie Chart
Actual
Living
Installment
Entertainment
Savings/Investmen
t
60%
18%
20%
-2%

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Credit
Management

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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

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What is Credit?
 What is it?
 Why Should I Care?
 Who Else Cares?

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Who Can Access Your Report?
 Creditors
 Collection agencies
 Insurance companies
 Employers
 Those you give permission
 You

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Do You Know Your Score?
 What is a ‘Credit Score’?
 How do I get one?
 How do I make it better?

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What Is Credit Scoring?
 Payment history
 Outstanding debt
 Credit history
 Types of credit
 Credit inquiries

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Components of the ‘Score’
 History
 Debts
 Age
 Inquiries
 Credit Mixture

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Credit Scoring (FICO)
 700 Approved
 650-699 DU Approval
 620-649 Man Review
 500-580 Sub Prime

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The 4 C’s of Credit
 Credit
 Capacity
 Collateral
 Capital

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What Are Common Credit
Problems?
 No credit
 Negative credit history
 High debt

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Credit Management
 Credit Affects:
 Finance
 Employment
 Insurance
 Know your score
 Monitor often
 Limit Access
 Seek Professional Help

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Protecting Yourself
 Identity Theft
 Maintaining Privacy
 Opting Out
 Keep Checking

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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

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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

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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

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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

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Fair Credit Reporting Act
 Protects your rights to know
what is in your credit report
and to fix mistakes

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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

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Foreclosure
Process

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Foreclosure Process
 California Process
 Judicial
 Non-judicial
 Foreclosure Process Flowchart
 Alternatives
 Loss Mitigation
 Modification
 Deed in Lieu of Foreclosure
 Repayment Plan
 Pre-foreclosure Sale

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BUYING FORECLOSURES
 When to buy foreclosures
 Before the auction (Pre-foreclosure)
 At the auction
 After the auction (REO)

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What Are My Alternatives?
 Special forbearance
 Mortgage modification
 Partial claim
 Pre-foreclosure sale
 Deed-in-lieu of foreclosure

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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

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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

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Protecting
Your
Investment

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Protecting Your Investment
 Types of Insurance
 Homeownership Tips
Your Community
1. Police
2. Fire
3. Others in your community

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Types of Insurance
 Hazard Insurance
 Flood Insurance
 Special Hazard Insurance
 Mortgage Insurance

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 Referred to as “Fire”
Insurance
 Required by the Lender
 Protects against hazards such
as fires or storms
HAZARD INSURANCE

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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

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Homeowner’s Insurance Features
 Dwelling coverage
 Other structures
 Personal property
 Loss of use
 Personal liability
 Medical payments coverage
 Deductible

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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

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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.

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TITLE INSURANCE
Usually required by the lender protect
the lender against any problems
with legal ownership of the property

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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

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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

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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

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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

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