financial planning for women june 2013 get your financial house in order before house hunting erica...
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Financial Planning for Women June 2013
Get Your Financial House in Order Before House Hunting
Erica Abbott, Family Finance StudentDr. Jean Lown, FCHD Dept.
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Welcome to FPW
• Personal Finance Action Plan– Make a commitment to yourself to take specific
action by a specific date• Please sign “attendance” sheet with name &
email address– (print clearly)
• First time attendee?• PF magazine give-away
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Overview• Is now the time to buy?
– Employment & family plans• Rates are low but be realistic re: affordability• Spending plan• Emergency fund• Pay down debts: don’t take on more debt• Save for down payment & closing costs• Check credit reports• Improve credit score
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How much can you afford? • Set firm limits to house payment• Don’t rely on real estate agent or mortgage
broker to tell you what you can afford• Payment no more than 25% of take home
pay• Down payment at least 10% of loan amount
– Utah Housing FTHB: 3 ½%• Don’t deplete emergency fund
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Consider the cost
• Property taxes– *Cache County estimate $8.21 for $1000
borrowed. – $100,000 home = $821 annual property tax!
• Insurance– PMI insurance if you don’t have 20% down
• Estimate $40-$50 a month for $100,000 borrowed
– Homeowners insurance • Varies
• *LowTaxRate.com estimator 5
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Consider the cost• Moving expenses• Closing costs: Ave. 3 – 6% home price• Home inspection• Title insurance• Utilities
– Bigger home = higher bill– Required deposits for utilities
• Yard care/snow removal equipment• Remodeling or updating
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Set Goals before you Buy
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What Kind of Goals?
• Spending plan that works
• Emergency Savings
• Paying down debt
• Credit in order
• Saving for closing costs, misc. costs, and down payment
• Make your goal specific and manageable
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Monthly Spending Plan
• Create a ZERO budget. Every dollar has a name! -Dave Ramsey• Spreadsheet on computer• Spreadsheet on paper• Envelope • Computer Programs
• Quicken, Quickbooks, Mint.com, etc.• Combination
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Spending Plan Methods
• Online: https://www.mint.com
• Get personal help at USU Family Life Center
• (435) 797-7224
• $15 per 2 hour session
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Emergency Savings
• 3-6 months of living expenses • Used for emergencies ONLY! • NOT part of your down payment
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Saving for a Down Payment & Closing Costs
• It's great to have 10% down.
• 20% is better
• Utah Housing first time home buyer:
• Avoid cost of private mortgage insurance
• Closings costs UT Housing: 2.5 - 3%
• More is better
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Paying Down Debt
• Set specific goals to pay off debt.– PowerPay.org program (Debt Snowball)– Pay off debt smallest to largest to build up
momentum or – Pay off debt highest interest rate first to save $
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Are you ready to be a homeowner?• In addition to building savings & boosting
your credit score…– How long do you plan to stay in the community?
• Plan at least 5 years in house (otherwise rent)
– Consider your job security (Spouse/partner?)– Planning on having (more) kids? – Planning to cut back from 2 incomes?
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Rent Vs. Buy
Pro Rent• No big up-front costs
– 1-3 mo. Rent
• Cheaper than buying– Big transaction costs
• Flexible: Move easily for new job or if income drops
• Less risky• LL does repairs • More $ for other goals
Pro-Buy• Sense of pride,
accomplishment, belonging• POSSIBLE tax deduction
– Not likely due to low rates & high standard deduction
• Make changes you want• Potential to build equity• American Dream
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Questions?
• Ideas or experiences to share?
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Mortgages 101
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Types of Mortgages
• Fixed rate mortgage: the interest rate doesn’t change throughout the life of the loan
• Adjustable rate mortgage: Interest rate can go up or down depending on current interest rates
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Types of Mortgages
• Balloon loan: A short-term mortgage in which small periodic payments are made until the completion of the term, at which time the balance is due as a single lump-sum payment– TheFreeDictionary.com
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Types of Mortgages
• Veteran Administration Loans (VA Loan): – Requires nothing down– No PMI insurance– Sometimes higher interest rates than you can
get with an FHA or conventional loan.– Max 41% of gross income
*http://www.zillow.com
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Types of Mortgages
• Federal Housing Administrations (FHA)– Low down payment (1 to 3%)– Low closing fees– Works with people with lower credit scores– Conventional might be better if you have more
than a 5% down payment– Max 31% of gross income
*http://www.zillow.com
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Types of Mortgages
• Conventional mortgage– Most require between 5 and 20% down– 620 credit score or better– Buyer will pay
• Origination fees• Down payment• Mortgage insurance etc.
– Max 28% of gross income unless non-conforming loan
*bankrate.com22
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Building a Positive Credit Report
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Overview
• Credit Report–How & why to get your free reports
• Credit Reporting Agencies: The big 3 • Credit Score(s)
–What it is–How it is used–What’s a ‘good’ score?
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What is a credit report?
• A continuing record of a borrower’s debt commitments and how well they have been honored.
• Married couples each have their own report
• Find yours by going to AnnualCreditReport.com
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How to build a credit history?• Time and good behavior• Start with a low limit credit card
– “You don’t have to carry over a balance, but you do need to use it.” –Rod Griffin, Experian
• Pay on time– Sign up for automatic payments
• Use less than 50% of your credit limit
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What’s in a Credit Report?
1. Identifying information– Name, current & past addresses, SS#
2. Credit use information– Active and inactive accounts– Payment history
3. Public record information– Criminal convictions, foreclosures, lawsuits
4. Inquiries– by creditors & your applications for credit
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What to look for
• Potentially negative items• Open accounts • Status of accounts
– open/never late is good – closed, past due, maxed out limit, etc.– Duplicates (account appears twice but is only
one loan) • Clear this up
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Find wrong information?
• Contact CRA (credit bureau)–Report explains how to correct mistakes
• Is it your mistake? –Spouse could have taken on debt–Unfamiliar company name
• Bought electronics, etc; store provides credit through finance company
• Lender changed names; was bought out, etc.
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Negative Information?
• Write 100 word explanation that goes with credit report –Explain reason for problem
• Negative Information should be removed after 7 years –10 years for bankruptcy
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Close accounts you aren’t using?• Consider impact on credit score if your
credit utilization ratio increases• Wait to close unused accounts until you
get your mortgage–Unused accounts: ID theft potential
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CRAs do NOT decide if you get credit!
• Each lender makes own decision• Lenders offer range of mortgage rates
based on credit score
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Free Annual Credit Report
• Get a free credit report once/year/ CRA: Experian, TransUnion, Equifax:–http://www.annualcreditreport.com–1-877-322-8228
• Reports are likely to differ–Order all 3
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Q on Credit Report?
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Credit Score
• Number (300-850) that reflects information in your credit report
• Determines how much you pay for credit–Higher score = lower cost credit–http://www.myfico.com/HelpCenter/FICOS
cores/Curious.aspx–Table shows $ impact of credit score
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Credit Score
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Retrieved from MyFico.com May 17th 2013
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Who Determines your Score?
• FICO=Fair Isaac Company http://www.fico.com–The 1st, most common, most important
score–Average is 692; range:300-850
• Average changes with time–Each CRA also calculates & sells own
score
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FICO Score• Based on:
– Payment history (35%)– Outstanding loan balances (30%)
• Credit utilization ratio
– Length of credit history (15%)– Inquiries (10%)– Types of credit (10%)
• Variety is good: credit cards, vehicle loan, mortgage• Avoid finance companies
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Credit Score Costs
• FICO score: $19.95• Experian: $7.95
Equifax: $15.95Transunion: $9.95
• Costs as of June 2012
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Estimate your FICO Score • Range: 300-850
– http://www.bankrate.com/calculators/credit-score-fico-calculator.aspx
– Answer 10 Q to estimate your score• About FICO Scores
http://www.myfico.com/Default.aspx– Map shows average score by state– What is a FICO score?– Understanding credit
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Beware of Scams
• Debt relief companies• Credit repair scams
–Claims to repair your credit are just not true. –Only time, effort and repayment will improve
credit report & score • Focus on paying current bills on time
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Summary
• Order free credit report today• Build a strong credit history• Use credit cards prudently
–2 cards are enough–Pay in full at end of month or be a debt
slave for life
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Resources
• Federal Trade Commission: credit & loans– http://www.ftc.gov/bcp/menus/consumer/credit.shtm
• Housing & Financial Counseling @ USU Family Life Center http://www.usu.edu/fchd/housing
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First time homebuyer workshops
• USU Family Life Center Housing & Financial Counseling http://www.usu.edu/fchd/housing/
• 435-797-7224 to register• 8:30 am. to 4:30 pm first Saturday• July 13th
• August 3rd • September 7th
• October 5th • November 2nd • December 7th
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Upcoming FPW
• July 10th: Saving for college with 529 college savings plans
• August: No Meeting! Enjoy your Summer Break• September 11th: “Social Security and Retirement
Timing,” with guest speaker and financial planner Suzanne Dalebout– Evening program will be at the Logan City library in the
Bonneville Room.
• October 9th and November 13th: TBA
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Where to Find FPW
• www.usu.edu/fpw• http://fpwusu.blogspot.com• http://www.facebook.com/FinancialPlanningforWom
en