Buying a Home – What you need to know - PowerPoint Presentation

Slide1

Buying a Home –

What you need to knowSlide2

How Much House Can You Afford?

Most important thing to know:

What is your price range?

Found by figuring out the following:

Down Payment

Monthly Home Payment You Can Afford – Monthly Taxes

How the monthly payment translates to home price (formula: monthly payment divided by current payment per thousand multiplied by 1000Slide3

Down Payment

Down Payment:

Can be as low as 0% for some military

Is usually as low as 3.5% for an FHA loan all the way up to 100% of the purchase price.

The most important down payment benchmark to hit is 20%

If you put at least 20% down on a house, you will avoid Private Mortgage Insurance (PMI).

PMI is an extra payment each month to secure the bank from the possibility of you defaulting on your loan

PMI is a fee that you will never receive anything in return for

Benefit of PMI? Slide4

Types of Mortgages

1)

Veterans Administration Mortgages (VA Loans):

Need to be a military veteran, active duty member, or surviving spouse of either of the previous two categories.

Pros of a VA Loan:

Can get a loan with $0 down payment.

Will approve riskier buyers:

Front-End DTI up to 41% instead of 33%

Credit score ≥ 620

Tend to have lower interest rates, bank fees/closing costs, and NEVER charge PMI

Cons of a VA Loan:

“Funding Fee” – usually between 2.15% and 3.3% of loan amount. Funding fee can be “rolled into” the mortgage loan.

VA loans can only be used for your primary residence, not available for vacation condos, income properties, etc. Slide5

Types of Mortgages

2)

Federal Housing Administration (FHA) Loan

Pros of an FHA Loan:

Can get a loan with as low as 3.5% down payment.

Lower Credit score required ≥ 580

Will lend to riskier buyers: Front-End DTI of up to 43% instead of 33%.

OK for multi-family residences as long as borrower occupies one of them.

Cons of an FHA Loan:

“Mortgage Insurance Premium – M.I.P – usually 1.75% of loan amount. M.I.P fee can be

“rolled into” the mortgage loan.

FHA loans also charge PMI of around 0.85% of loan amount per year.

Loan caps: FHA loan limits in 2020 range from $331,760 to $765,600 depending on cost of area

Subject to minimum property standards. Loan can be denied if neighborhood deemed a risky investment by the Housing Authority. Slide6

Types of Mortgages

3)

Conventional Bank Mortgage Loan

Pros of Conventional Loan:

Tend to have lower interest rates than FHA.

No governmental origination fees (VA Funding Fee or FHA M.I.P.).

If you can put 20% down, no PMI payments EVER!

Loan is processed much quicker allowing borrower to move-in much faster.

No owner occupancy requirements.

Cons of Conventional Loan:

Harder to qualify for:

Higher minimum credit Score ≥ 640 (≥ 720-750 for the best mortgage rates at many banks) .

Usually must provide significant length of employment and bank account history.

DTI Requirements stricter: Front-End DTI usually 33% (can be higher if excellent credit score).

Closing costs paid as cash. Usually cannot be rolled-into mortgage loan. Slide7

Types of Mortgages

4)

Non-Conforming Bank Loan (Jumbo Mortgage)

Pros of Jumbo Mortgage:

Basically the same as a conventional mortgage on the last slide

Much larger loan limits (Usually up to $3,000,000).

Cons of Jumbo Mortgage:

Same cons as conforming loans in the last slide, PLUS:

Even Harder to qualify for:

Even higher minimum credit Score ≥ 700 (>750 for the best mortgage rates at many banks) .

2

nd

appraisal on house usually required.

Must show cash assets ≥ 6 months of mortgage payments since loan is larger. Slide8

Example:

Let’s See How Much of a House Someone Can Afford:

Yearly Salary: $50,000

Current Mortgage Rates are 4% which means a payment of $4.77 per thousand

Taxes in the area are $8000 per year

This person has funds of $40,000 available for a down payment