Buying Your First Home

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Housing & Mortgage Markets are Like Florida After a Hurricane!

Is Housing a Good Investment?

• Home Price Risks– Home Values Will Go

Up– Home Values Will Go

Down– Home Values Will Stay

the Same

Median Housing Prices

Assuming It Costs The Same or Less to Rent vs. Own (after tax)

• $200,000 House• 20% Down Payment = $40,000 Investment• 3% Annual Appreciation Over 20 Years:

– $361,222 Home Value– $161,222 Gain– 8.41% Annual Rate of Return

• 1.5% Annual Appreciation Over 20 Years:– $269,371 Home Value– $69,371 Gain– 5.16% Annual Rate of Return

Assuming it Costs The Same or More to Rent vs. Buy (after tax)

• $200,000 House• 20% Down Payment = $40,000 Investment• 3% Annual Appreciation Over 20 Years:

– $361,222 Home Value– $161,222 Gain– $76,291 Additional Equity Through Principal Reduction– 10.17% Annual Rate of Return

• 1.5% Annual Appreciation Over 20 Years:– $269,371 Home Value– $69,371 Gain– $76,291 Additional Equity Through Principal Reduction– 7.98% Annual Rate of Return

Long Term Housing Needs

Demand for Homes• 3 million more people

each year– 1.27% avg. annual

population growth since the year 1900

• 1.3 to 1.5 million household formation per year

• 1.4 million per year was the 30-year average

Supply of Homes• 300,000 homes

demolished per year

• 1.6 – 1.8 million new units needed to keep up with population and replace demolished homes

Housing Starts

Year Housing Starts

2000 1.6 million

2001 1.7 million

2002 1.7 million

2003 1.9 million

2004 2.0 million

2005 2.1 million

2006 1.8 million

2007 1.3 million

2008 < 1.0 million

2009 forecast < 1.0 million

10-year Sum 16.1 million

Could lead to housing shortage?

Is this a good time to buy?

• Warren Buffet:– “I buy on the assumption that they could close the market

the next day and not reopen it for five years.”– “The dumbest reason in the world to buy a stock is because

it’s going up.” [buy value]• Imagine going shopping a department store, and getting all

emotional and buying all you can when prices are rising. Then, when prices are falling because of a blow-out sale, you stay away from the store, or worse, you go back to the store and sell everything at rummage sale prices that you bought before at a high price. That is what people do every day in the real estate market.

Understanding the Costs of Owning a Home

• Mortgage payment (PITI)– Principal– Interest– Property Taxes– Home Insurance– Mortgage Insurance (if less than 20% down)– Condo and homeowner association dues

• Repairs and Maintenance• Landscaping• Furniture / Draperies / Housing Decorations

Understanding the Costs of Selling a Home

Sales Price $200,000Real Estate Commissions (6%) ($12,000)

Real Estate Transfer Taxes ($2,000)

Title Insurance ($2,000)

Mortgage Pay-off ($160,000)

Net Sales Proceeds $24,000

Understanding the Costs of Buying a Home

3.5% Down Payment

10% Down Payment

20% Down Payment

Purchase Price $200,000 $200,000 $200,000

Down Payment $7,000 $20,000 $40,000

Closing Costs* $2,500* $2,500* $2,500*

Mortgage Points* $1,930* $1,800* $1,600*

Upfront MIP* $3,378* - -

Pre-paid Items $2,000 $2,000 $2,000

Total Cash Needed to Close $16,808 $26,300 $46,100

Total Cash Needed to Close (with seller paid costs)

$9,000 $22,000 $42,000

* Can be paid by seller!

Have the Seller Pay Points and Closing Costs on Your Behalf

• In most cases lenders will allow the seller to pay 3% - 6% of the purchase price in points and closing costs on your behalf

• Why would the seller do this?– Makes their home more affordable to more buyers– Sell their home quicker

• Why important to you?– Reduces your cash required to close– Seller-paid points are 100% tax deductible to you!– Lowers your monthly payments and dramatically

reduces the long-term costs of owning the home

Seller-Paid Points

Seller-Paid Points Save You Much More Money than a Lower Purchase Price!

Plus, points are fully deductible to you even when paid by seller!!

Understanding the Tax Benefits of Home Ownership

Rent Own*

Before Tax Payment $1,250 $1,554Principal - $211

Interest** - $885**

Mortgage Insurance** - $88**

Property Taxes** - $300**

Home Insurance - $70

Tax Benefit (25% tax bracket) - ($318)

After Tax Payment $1,250 $1,236* Assumes 96.5% FHA Financing on $200k purchase price** These items are generally tax deductible – see a CPA for details.

Understanding the First-Time Homebuyer Tax Credit

• Like a gift certificate to IRS Restaurant that you can turn in and redeem for cash immediately after closing!

• Not owned a home in the last three years– Single - $75k / $95k– Married - $150k / $170k

• January 1, 2009 – November 30, 2009– $8,000– Repaid only if you sell the home within 3 years

First-Time Homebuyer Tax Credit: More Rules…

• Married couples - both must be first-time buyers• No purchases from related parties

– Spouse, Ancestors, Lineal descendants• Unmarried FTHB can split credit “in any reasonable

manner” - generally based on ownership % and/or $$ contributions to the purchase price; total credit cannot exceed $8,000– Of the buyers, only the ones who are qualified FTHB

can claim the credit (income, whether owned a home, etc.)

– Co-purchasers and Co-signors OK!

Are You 62 or Older? You May Want to Consider a Reverse Mortgages for Your Home Purchase

• Higher loan and value limits - $625,500– Expires at the end of 2009– $417,000 in 2010

• Can Be Used to Purchase 1-4 Unit Properties• How does It Work?

– Buyers Age 62 and Older– 30% - 35% Down Payment– No Income or Credit Qualification– NO MORTGAGE PAYMENTS for the rest of

your lives!

Can’t Qualify Now? Participate in Our “Tenant-to-Homeowner Program”

• Rent-to-Own• Investors

– Willing and able to invest $40,000 - $50,000– Timeframe is 3-4 years– Qualified for NOO financing

• Tenant-Home Buyers– Willing and able to re-establish credit within 2-3 years– Likely to qualify for FHA or conventional financing in 2-3

years– Willing to contribute 5% toward non-refundable deposit

CMPS® Professionals: Committed Qualified & Equipped to Focus on Life Issues in YOUR WORLD

• College Funding - Four years, including room and board; PER CHILD

– $84k = public– $148k = private– $196k = Ivy League

• Retirement Planning– Average LE = 79

• Elder-Care Issues– 4.9 million Americans with Alzheimer’s disease– 27% of adult Americans care financially for elderly friends or

relatives

Bottom Line: This Decision Will Impact Your Life for Years to Come!

Next Steps: How Can I Help?

• Schedule meeting to review your situation

• Help me understand your timelines, goals and objectives

• Develop a home buying budget that meets your housing and cash flow needs

• Discuss and select the home buying and mortgage planning strategies that make the most sense for your situation