first time home buyer

Presented by Steven Santopietro

Mortgage Originator | NMLS #1447034c: (401) 862-6551 | o: (401) 384-6970 | f: (401) 384-69724/15/16

First Time Home Buyer Seminar

Finance of America Mortgage | Slide 2

Buying your first home• For many this is the biggest financial decision of their lives

• By taking the right approach, you can reduce the stress and HAVE FUN


Are you ready for homeownership?• Are you ready to settle down and become part of a community or do

you have the itch to keep moving? Be honest with yourself

• Is your employment stable?

• Do you have some savings to put toward a down payment and closing costs?

• Can you afford a monthly mortgage payment? If you have never done so, now is the time to create a budget…(next slide)


Budget Worksheet CURRENT POTENTIALINCOME Occupation 1 (Net: after taxes, deductions)

Occupation 2 (Net: after taxes, deductions)

Other Income 1

Other Income 2

Total Income

FIXED EXPENSE Rent or housing

Auto payments

Auto insurance

Utilities

Student loans

Phone and mobile phone

Cable/satellite

Other

Total Fixed Expense

VARIABLE EXPENSE Groceries

Dining out

Clothing

Entertainment

Gifts

Gas/Travel

Other

Total Variable Expense

Amount left over (Income - FE - VE)


Benefits of homeownership• Lifestyle Benefits

o Pride of owning your own home and being part of a communityo Improvements, upgrades, paint color, etc. – are all YOUR choice!!

• Tax Benefitso The interest and Real Estate taxes are tax deductionso In some cases your mortgage insurance premium is also tax deductibleo This is a great benefit that you do not get if you are paying rento Example - $100,000 – 30 year fixed rate at 4.5%; $2200/year Real Estate taxes;

private mortgage insurance $45/month ($540/year)Interest in year 1 = $5587Real Estate tax = $2200Mortgage Ins. = $ 540 Total = $832725% tax bracket = $2081 annual deductionMonthly savings = $173

The only way to know the exact tax benefit is to consult a qualified CPA or tax preparation specialist


• Building Equityo Example of how principal payments and appreciation can benefit you

over time: REMEMBER - NO ONE KNOWS HOW MUCH OR IF THE HOME VALUE WILL APPRECIATE. THIS IS JUST AN EXAMPLE

o Home purchased in 2014; $100,000 sale price; 5% down payment + 5% closing costs = $10,000 initial investment

o 3% appreciation for 5 years2015 value = $103,0002016 value = $106,0902017 value = $109,2722018 value = $112,5502019 value = $115,927

o Principal balance after 5 years (paying 4.5% interest)$86,600

o Equity position$29,327


What’s the best way to get started?

• Think about what you want in a home

o Neighborhood; # of bedrooms and bathrooms; backyard, etc.

o From that list decide what is a “must have”


What’s the best way to get started?• Assemble your team of trusted experts. You cannot possibly know

everything about Real Estate and Mortgage Financing on your own so picking your team of trusted advisors is the #1 key to successo Find a lender and discuss a preapprovalhttps://www.youtube.com/watch?v=dgVRRXTdP54&x-yt-ts=1421914688&x-yt-cl=84503534&feature=player_embedded

• Find a Realtor and set the path for your home searcho With your preapproval in hand, refine your home search so it is

targeted to properties that fit your personal and financial goals https://www.youtube.com/watch?feature=player_embedded&x-yt-cl=84503534&list=PLMkQiqQJwVt6A4WKpkJHejdu8xEP0R6n6&v=nvMVnVX_2UY&x-yt-ts=1421914688

https://www.youtube.com/watch?v=dgVRRXTdP54&x-yt-ts=1421914688&x-yt-cl=84503534&feature=player_embedded

https://www.youtube.com/watch?v=dgVRRXTdP54&x-yt-ts=1421914688&x-yt-cl=84503534&feature=player_embedded

https://www.youtube.com/watch?feature=player_embedded&x-yt-cl=84503534&list=PLMkQiqQJwVt6A4WKpkJHejdu8xEP0R6n6&v=nvMVnVX_2UY&x-yt-ts=1421914688




What is a preapproval?

• A preapproval lets you know if you are able to get the mortgage financing you will need to buy the home

• Credit is checked. Income and assets are verified.

• Can be done online, over the phone or face-to-face

• A good lender then looks at your profile and recommends a few mortgage programs that best meet your specific needs


Why is it so important?• Helps you target your home search on homes you are qualified to purchase• Getting your financing in place

o Makes your offer much stronger because the seller knows you can get the mortgage

o Takes a big piece of stress out of the way so you can ENJOY the process of buying a home

• THINK ABOUT IT! If you are buying a home for $150,000 and you are borrowing $142,500 doesn’t it make sense to make sure you can qualify for that loan?o READY, AIM, FIRE (YES!!!)o READY, FIRE, AIM (NO!!!!)


What happens when I am ready to make an offer?• Complete a Competitive Market Analysis: You and your Realtor will examine

homes that have recently sold in that neighborhood to determine our opinion of the home’s worth.

• Offer Planning: You and your Realtor will combine the results of the CMA with your personal goals and draft a contract to achieve the desired result.

• Submit the Offer: Your Realtor will submit the offer to the seller with a copy of your preapproval letter attached and as a team you will negotiate the best possible deal


What happens once my offer is accepted?• Your Team Collaborates: You, Your Realtor and your Mortgage Lender

will touch base to make sure everyone is organized for the next phase of your purchase

• You and Your Realtor will deliver the "Good Faith Deposit" check to the Seller's Realtor and it will be deposited into an escrow account

• You and your Realtor will coordinate a home inspection so you can get an expert opinion on the home you are purchasing

• You and your Realtor will work side by side with your Mortgage Lender to make sure they have all of the necessary documents and approvals to issue you a mortgage on your closing date


What factors are evaluated for full loan approval?

CREDIT• VERY important part of the decision

• Timely payment and sensible utilization are the 2 most important drivers of your credit score

• Having a lender check your credit is the best first step in the preapproval process


Factors that contribute to FICO score35%

30%

15%

10%10%

Payment HistoryUtilizationLength of HistoryTypes / MixNew Credit

Positive Factors:• No Late Payments• Responsible Utilization• Diverse Mix• Long History• Keep Accounts open 5+ years

Negative Factors:• Late Payments• Overutilization• Loading up on One Type of Credit• Too Much New Credit• Applying for Too Many Loans


Top Tips For Getting Your Loan

Do not pay collections until your mortgage lender has a chance to review your credit report. This goes against common sense, but keep in mind that credit scores can drop when you pay a collection. While this doesn't happen in all cases, don't take the chance until your mortgage professional advises you on what to do.

The rules have changed since January 2014, and getting your home is not what it used to be. Presented here are some key tips that you should know:


Keep your balances on your credit cards low. One of the biggest contributors to your current credit score is how you've used your credit cards. That means that your balances have to stay as low as possible at all times while you are getting your loan approved. Don't run up balances and pay them off – that can backfire!

Do not close ANY cards. Even if you pull your own report and see something like “Too many revolving accounts”, it doesn't mean you should close any credit cards (that line means something else). When you close cards, it changes your available credit. And if you carry balances, it means you're using more of what is available to you over all. If that goes up, your score can go down. Keeping accounts open helps!

Top Tips for getting your loan


It's OK to shop for a loan until you find a lender you are comfortable with. Then STOP. The score can see when you are shopping for a mortgage. If you start shopping, then stop and restart sometime later, it thinks you are buying more than one house, and that can hurt. So keep shopping until you find a lender that can educate you with credible sources with whom you feel comfortable. Then don't shop for anything. This includes new credit cards, cars, furniture, or anything else that can change your credit report. You will most likely have two credit reports pulled: one when you get qualified, and one right before you close on your house. The second credit report is the final loan determination. You don't want it to look different than the first!

Top tips for getting your loan


Know which online scores are real. Online scores usually aren't FICO scores, which are the scores that lenders use to make decisions about your loan. The differences can often be up to 200 points. While the changes in the online scores are close to changes to a FICO score, the actual number is usually different. The only way to get a true picture about what you can qualify for will come from your mortgage lender or credit reporting agency.

Top tips for getting your loan

Opt Out. Call 888-5-OPT-OUT or visit www.optoutprescreen.com and remove your name from prescreened marketing lists. This will cut down on junk mail, help prevent ID theft, and stop solicitations from other lenders once you start your mortgage process.

http://www.optoutprescreen.com/


How do I improve my credit?

• For smaller increases, predictive modeling can help

• For more significant increases credit agencies and counseling agencies can help


What constitutes employment stability?

• Generally need 2 full years of employment

• College years can count when you secure a job in your chosen field

• A good lender will review your employment history and let you know if it meets guidelines


How are income and debts evaluated?Lenders will calculate 2 “ratios” to see if you qualify

• A “front ratio” compares the mortgage payment on the new home to your gross monthly income. The mortgage payment normally includes

Principal and Interest payment 1/12th of the annual Real Estate taxes 1/12th of the annual Homeowner’s Insurance Mortgage Insurance premiums (if applicable) Condo or Association fees (if applicable)

• A “back ratio” compares the mortgage payment PLUS your other monthly liabilities on the new home to your gross monthly income


How are income and debts evaluated?Generally your mortgage payment should not exceed 33% of your monthly income and your total debts should not exceed 45% of your gross monthly income• The preapproval process focuses in on YOUR SPRECIFIC INFORMATION!• REMEMBER: you may qualify for more than you want to spend


What is an appraisal?

• A report prepared by an independent, certified professional

• The report assigns a value to the property primarily determined by comparing to other similar properties that have recently sold and settled

• The report will also identify any condition of the property that makes it unacceptable collateral for the loan. Anything that poses a health or safety hazard will be unacceptable

• AN APPRAISAL IS NOT A HOME INSPECTION!


What is a home inspection?• Your Agreement of Sale can and should have a Home Inspection

contingency• A report prepared by an independent professional typically hired by the

buyer• Check for certification since not all home inspectors are certified• The cheapest may not be the best• You should walk through the home with the inspector so they can point out

important details about how the systems operate and how to properly maintain the home

• The report will thoroughly evaluate every aspect of the home• Any repairs can become subject of further negotiations with the seller


How much money do I need to buy a house?• Buyers need to make a downpayment and pay closing costs. This is

typically the biggest hurdle for most buyers

• Different mortgage programs require different levels of downpayment

• Buyers with less than a 20% downpayment are required to pay a Mortgage Insurance premium.

• Minimum Downpaymento Conventional – 3%o FHA - 3.5%o VA – 0%


Are there ways to reduce the cash needed? - Yes!!!• Settlement Assistance Grants

o If you are within household income limits and complete counseling sessions with an approved agency, you may be entitled to a Settlement Assistance Grant

o Philly has 2 programs Settlement Assistance Grant - $500 Homebuyer Assistance Grant - $10,000 (limited to 4 projects)


Are there ways to reduce the cash needed? - Yes!!!• Seller Assist

o Ask the seller to pay some of your closing costs as part of the negotiation - This is a very powerful tool!!!


Summary• Buying your first home is a very big financial decision

• There are too many details and too much information for you to take this on yourself

• Assemble a team of experts that are experienced, and knowledgeable. Make sure they explain things in a way you clearly understand and you can trust they have your best interests in mind

• Work with the lender and the Realtor on your team to get preapproved and to identify what is important to you in a home

• Start shopping and HAVE FUN!!!!!


For Real Estate Financing questions please contactSteven SantopietroNMLS #1447034Mortgage Originatorc: (401) 862-6551f: (401) 384-6972ssantopietro@financeofamerica.comwww.financeofamerica.com1865 Post Rd. | Suite 103 | Warwick, RI 02886

http://www.financeofamerica.com/