how much house can you afford? 1 source: keys to home ownership: national foundation for credit...
TRANSCRIPT
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How Much House Can You Afford?
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Source: Keys to Home Ownership: National Foundation for Credit Counseling
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Be A Financial Trainer or Tamer
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How Much
House Can You Afford?
2 ½ times your yearly income
(or maybe 3)
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$ 40,000.00 annual income
x 2.5
$100,000.00 house
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YOURBUYING POWER
• Your income
• Your existing debt
• Your down payment
• The interest rate
• Your credit record
• Mortgage term (length)
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How Much is
A Lender Willing to Lend You?
Your monthly housing costs should total no more than 28% of your gross monthly income (approximately ¼)
Housing Costs28%
Other Costs72%
1.6Income
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$ 40,000.00 annual income
12 months
$3,333.33 monthly income
X .28
$ 933.00 house payment
7Income
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Increase Your Income and You
Increase The Amount of House You Can Afford
Income8
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How Much is
A Lender Willing to Lend You?
Your total debt should total no more than 36% of your gross monthly income (approximately 1/3)
(A lender may finance at 42%)
Total Debt36%
Residual Income
64%
2.9Debt
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$ 40,000.00 annual income
12 months
$3,333.33 monthly income
X .36
$1,200.00 TOTAL DEBT
-- 933.00 house payment
$ 267.00 in other debts
10Debt
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Decrease Your Debt and You Increase The
Amount of House You Can Afford
Debt11
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YourDown Payment
• 20% Traditional Conventional
• 5% Today’s Conventional
• 3-5% Federal Government Insured
• 2-3% State Government Program
• 0% Veterans Administration
• 0% Builder Finance
12Down Payment
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On a non-insured mortgage, if you do not have a 20% down payment you will have to pay PMI (personal mortgage insurance)
Personal Mortgage Insurance
13Down Payment
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Increase Your Down Payment
and You Increase The Amount of House You Can
Afford
Down Payment
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A Decrease In The Interest Rate and You Increase The Amount of House You Can Afford
Interest Rate
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Credit WorthinessIs Determined By Your FICO Score
• Payment History (35%)
• Indebtedness (30%)
• Length of Credit (15%)
• New Credit Initiated (10%)
• Types of Credit in Use (10%)
Interest Rate
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An Improvement In Your Credit
Record and You Increase The
Amount of House You Can Afford
Interest Rate
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A Decrease In The Term of Your
Mortgage and You Decrease The
Amount You Pay For Your House
Mortgage Term
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30 Year Mortgage
3 times the price of your house
15 Year Mortgage
2 times the price of your house
Mortgage +
Interest + Interest + Interest
Mortgage Term
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Monthly Mortgage Payment
P&I =?
PITI = ?
PITI + PMI = ?
T&I = ?
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Purchase Price = $ 200,000.00Down Payment (5%) = $ 10,000.00Loan Amount = $ 190,000.00Est. Closing Costs = $ 5,700.00(Total cash required at closing 15,700.00)Principle & Interest (7%) = $ 1,256.75Est. Taxes and Insurance = $ 290.00Est. PMI = $ 80.00Total Monthly Payment = $ 1,626.75Monthly Income Required $ 5,000.00Yearly Income Required $ 60,000.00Debt Allowed Per Month $ 400.00
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• Upfront costs•down payment• closing costs
• points• settling in costs
Terminology
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• Ongoing costs• Monthly Mortgage Payment
• P & I• equity
• T& I• escrow
• PMI• Maintenance & repairs
Terminology
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Terminology
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• Mortgages• Conventional• ARM
• Prepayment Penalty• Rehabilitation Loans - Community Home
Improvement Mortgage Loans• Seller take-back• Lease-purchase • Fannie Mae and Freddie Mac Community
Lending
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Terminology
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• Government Insured Mortgages• Federal
• HUD• FHA
• VA• USDA
• RHS• State and local loan programs
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How Much House Can You Afford?
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