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The Road toHomeownership

1A rst home is the single most exciting purchase many people make in their lifetime. It can also be a wise personal and nancial decision. Homeownership provides a sense of security, considerable tax advantages, and the opportunity to build equity. As an investment, real estate can be an excellent option, as it balances out a portfolio and can act as a hedge against riskier securities. Further, the equity amassed in a home can be used for other goals, such as retirement income, education costs, orto pass on to loved ones.If you are considering homeownership, it’s never too early to start planning. Though the process can feel long and overwhelming at times, it’s really nothing more than a series of practical steps.

2Calculate How Much Home You Can AffordA great place to start is to understand the price of home that you can afford. Keep in mind that there is often a difference between the amount of loan you qualify for and how much debt you can comfortably take on. In other words, just because you can, doesn’t mean you should.A B C D EHome value $250K $250K $500K $500KDown payment$50K(20%)$8,750(3.5%)$100K(20%)$17.5K(3.5%)Financing(30-year xed)3.75% 4.25% 3.75% 4.25%Principal and interest $926 $1,187 $1,852 $2,374Property taxes (est. 1.25%) $260 $260 $521 $521Homeowners insurance* $125 $125 $165 $165Mortgage insurance (est. 1%) $0 $201 $0 $402Monthly housing costs (PITI) $1,311 $1,773 $2,538 $3,462how much mortgage payment you can comfortable afford.

3Check Your Credit Reportreports, immediately dispute it with the bureaus.Your Credit Score • Payment history – • Amounts owed –can lower your score. • Length of credit history – • Pursuit of new credit – • Types of credit in use – • Improving credit – •  •  •  •  • Keeping old accounts open

4Housing expenses Current ProposedRent/mortgage $ $2nd Mortgage $ $HOA (association dues) $ $Property taxes $ $Homeowner’s insurance $ $Renter’s insurance $ $Gas/electric (average) $ $Water/sewer/garbage $ $Home maintenance $ $Monitored alarm $ $Gardening $ $Pool/hot tub service $ $Other expenses Current ProposedSavings $ $Car payment #1 $ $Car payment #2 $ $Gasoline $ $Maintenance/repairs $ $Auto insurance $ $Auto registration $ $Tolls/parking/mass transit $ $Telephone $ $Cell phone/pager $ $Groceries $ $Household items $ $Health insurance $ $Prescriptions/doctor visits $ $Daycare/babysitting $ $Alimony/child support $ $Tuition/lessons $ $Student loans $ $Taxes (monthly repayment) $ $Life insurance $ $Union dues $ $Beauty/barber $ $Movies/video rentals $ $Internet access $ $Monthly Budget Worksheet

5Monthly Budget Worksheet (continued)Income Current ProposedJob $ $Spouse’s job $ $Part-time job $ $Rental/room & board received $ $Commissions/bonuses $ $Tax refunds $ $Investment income $ $Government benets $ $Unemployment insurance $ $Child support/alimony $ $Support from family/friends $ $Other $ $Total income$ $Net Current ProposedTotal income$ $Total expenses- $ $Over/under= $ $Cable/satellite $ $Dining out $ $Vacations/travel $ $Laundry/dry cleaning $ $Storage fees $ $Books/music/DVDs $ $Clothing purchases $ $Gifts/cards $ $Pet care $ $Banking fees/postage $ $Cigarettes/alcohol $ $Religious $ $Charity $ $Sports/hobbies/clubs $ $Gym $ $Other $ $Other $ $Total expenses$ $

6Plan for Up-front CostsDown paymentlower your monthly outlay.Earnest moneyyou submit your offer, the money is deposited into an escrow account. If your offer is accepted, it will be applied toward the down payment. If Home inspectionClosing costsPost-purchase reserve fundsThe extrasBegin SavingExample: If your objective is to save $15,000 and you want to purchase a home in three years, then you’ll need to set aside about $416 every month ($15,000/36).

7The Components of a Mortgage Loan • Principal –the beginning, and more principal than interest as you get further into the payback. • Interest – • Taxes – • Insurance –wind, or other hazards.Potential mortgage related expensesmanagement and upkeep of common areas.equity in the home.Mortgage TypesFixed-rate mortgagean increase in outlay.Adjustable-rate mortgageInterest-only mortgageanother risky type of mortgage since there is no guarantee you will be able to afford the increased payments in the future.

8Mortgage Termpayment since you are paying off the loan faster. A longer mortgage term means a lower monthly payment, but you will end up  • Government Programs – • VA loans – • FHA loans –programs in your area.Adjust for the Tax BenetsIf your adjusted gross income was $40,000 last year, and you bought the $250,000 home, your adjusted gross income this year will be $29,380: $40,000 adjusted gross income - $10,620 mortgage deduction = $29,380 new adjusted gross incomeAssuming you are in the 28 percent tax bracket, your tax savings will be approximately 28 percent of your total mortgage deduction: $10,620 x 28% = $2,974 annually ($248 monthly)If your adjusted gross income was $80,000 last year, and you bought the $500,000 home, your adjusted gross income this year will be $58,748: $80,000 adjusted gross income - $21,252 mortgage deduction = $58,748 new adjusted gross incomeAssuming you are in the 33 percent tax bracket, your tax savings will be approximately 33 percent of your total mortgage deduction: $21,252 x 33% = $7,013 annually ($584 monthly)Home value $250K $500KEstimated monthly interest and taxes $885 $1,771Annual deduction (estimated monthly interest and taxes multiplied by 12 months) $10,620 $21,252

9Getting a LoanApplication criteria • Credit score – • Down payment amount and other assets – • Employment history – • Income – • Debt –Applying for FinancingPre-qualification vs. pre-approvalSearching for a Home and Making an OfferShop aroundown by looking through the real estate listings online, or enlist the help of a real estate agent.of working with an agent who represents both you and the seller.Decide What You Want From Your Homesingle family or condo), location, garage(s), yard, school district, safety, and noise.

10Making an Offer • Purchase price • Closing date • How long the offer is still goodbut not owned by, a party.Final StepsPre-closing periodthe seller to do something are limited.Closing • Mortgage note – • Mortgage or deed of trust – • Closing Disclosure and Loan Estimate –The process is complete and the keys are yours. Welcome home.

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