Financial Planning for Women June 2013

Get Your Financial House in Order Before House HuntingErica Abbott, Family Finance StudentDr. Jean Lown, FCHD Dept.

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Welcome to FPW• Personal Finance Action Plan

– Make a commitment to yourself to take specific action by a specific date

• Please sign “attendance” sheet with name & email address– (print clearly)

• First time attendee?• PF magazine give-away

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Overview• Is now the time to buy?

– Employment & family plans• Rates are low but be realistic re: affordability• Spending plan• Emergency fund• Pay down debts: don’t take on more debt• Save for down payment & closing costs• Check credit reports• Improve credit score

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How much can you afford? • Set firm limits to house payment• Don’t rely on real estate agent or mortgage

broker to tell you what you can afford• Payment no more than 25% of take home

pay• Down payment at least 10% of loan amount

– Utah Housing FTHB: 3 ½%• Don’t deplete emergency fund

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Consider the cost• Property taxes

– *Cache County estimate $8.21 for $1000 borrowed.

– $100,000 home = $821 annual property tax!• Insurance

– PMI insurance if you don’t have 20% down• Estimate $40-$50 a month for $100,000 borrowed

– Homeowners insurance • Varies

• *LowTaxRate.com estimator 5

Consider the cost• Moving expenses• Closing costs: Ave. 3 – 6% home price• Home inspection• Title insurance• Utilities

– Bigger home = higher bill– Required deposits for utilities

• Yard care/snow removal equipment• Remodeling or updating

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Set Goals before you Buy

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What Kind of Goals?• Spending plan that works• Emergency Savings• Paying down debt• Credit in order• Saving for closing costs, misc. costs, and

down payment• Make your goal specific and manageable

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Monthly Spending Plan• Create a ZERO budget. Every dollar has

a name! -Dave Ramsey• Spreadsheet on computer• Spreadsheet on paper• Envelope • Computer Programs

• Quicken, Quickbooks, Mint.com, etc.• Combination

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Spending Plan Methods

• Online: https://www.mint.com• Get personal help at USU Family Life

Center• (435) 797-7224• $15 per 2 hour session

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Emergency Savings• 3-6 months of living expenses • Used for emergencies ONLY! • NOT part of your down payment

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Saving for a Down Payment & Closing Costs

• It's great to have 10% down.• 20% is better• Utah Housing first time home buyer:

• Avoid cost of private mortgage insurance

• Closings costs UT Housing: 2.5 - 3%• More is better

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Paying Down Debt• Set specific goals to pay off debt.

– PowerPay.org program (Debt Snowball)– Pay off debt smallest to largest to build up

momentum or – Pay off debt highest interest rate first to save $

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Are you ready to be a homeowner?• In addition to building savings & boosting

your credit score…– How long do you plan to stay in the community?

• Plan at least 5 years in house (otherwise rent)– Consider your job security (Spouse/partner?)– Planning on having (more) kids? – Planning to cut back from 2 incomes?

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Rent Vs. BuyPro Rent• No big up-front costs

– 1-3 mo. Rent• Cheaper than buying

– Big transaction costs• Flexible: Move easily for

new job or if income drops

• Less risky• LL does repairs • More $ for other goals

Pro-Buy• Sense of pride,

accomplishment, belonging• POSSIBLE tax deduction

– Not likely due to low rates & high standard deduction

• Make changes you want• Potential to build equity• American Dream

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Questions? • Ideas or experiences to share?

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Mortgages 101

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Types of Mortgages• Fixed rate mortgage: the interest rate

doesn’t change throughout the life of the loan

• Adjustable rate mortgage: Interest rate can go up or down depending on current interest rates

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Types of Mortgages• Balloon loan: A short-term mortgage in

which small periodic payments are made until the completion of the term, at which time the balance is due as a single lump-sum payment– TheFreeDictionary.com

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Types of Mortgages• Veteran Administration Loans (VA Loan):

– Requires nothing down– No PMI insurance– Sometimes higher interest rates than you can

get with an FHA or conventional loan.– Max 41% of gross income

*http://www.zillow.com

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Types of Mortgages• Federal Housing Administrations (FHA)

– Low down payment (1 to 3%)– Low closing fees– Works with people with lower credit scores– Conventional might be better if you have more

than a 5% down payment– Max 31% of gross income

*http://www.zillow.com21

Types of Mortgages• Conventional mortgage

– Most require between 5 and 20% down– 620 credit score or better– Buyer will pay

• Origination fees• Down payment• Mortgage insurance etc.

– Max 28% of gross income unless non-conforming loan

*bankrate.com22

Building a Positive Credit Report

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Overview• Credit Report

–How & why to get your free reports• Credit Reporting Agencies: The big 3 • Credit Score(s)

–What it is–How it is used–What’s a ‘good’ score?

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What is a credit report?• A continuing record of a borrower’s

debt commitments and how well they have been honored.

• Married couples each have their own report

• Find yours by going to AnnualCreditReport.com

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How to build a credit history?• Time and good behavior• Start with a low limit credit card

– “You don’t have to carry over a balance, but you do need to use it.” –Rod Griffin, Experian

• Pay on time– Sign up for automatic payments

• Use less than 50% of your credit limit

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What’s in a Credit Report?

1. Identifying information– Name, current & past addresses, SS#

2. Credit use information– Active and inactive accounts– Payment history

3. Public record information– Criminal convictions, foreclosures, lawsuits

4. Inquiries– by creditors & your applications for credit

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What to look for• Potentially negative items• Open accounts • Status of accounts

– open/never late is good – closed, past due, maxed out limit, etc.– Duplicates (account appears twice but is only

one loan) • Clear this up

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Find wrong information?

• Contact CRA (credit bureau)–Report explains how to correct mistakes

• Is it your mistake? –Spouse could have taken on debt–Unfamiliar company name

• Bought electronics, etc; store provides credit through finance company

• Lender changed names; was bought out, etc.

Negative Information? • Write 100 word explanation that goes

with credit report –Explain reason for problem

• Negative Information should be removed after 7 years –10 years for bankruptcy

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Close accounts you aren’t using?• Consider impact on credit score if your

credit utilization ratio increases• Wait to close unused accounts until you

get your mortgage–Unused accounts: ID theft potential

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CRAs do NOT decide if you get credit!• Each lender makes own decision• Lenders offer range of mortgage rates

based on credit score

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Free Annual Credit Report

• Get a free credit report once/year/ CRA: Experian, TransUnion, Equifax:–http://www.annualcreditreport.com–1-877-322-8228

• Reports are likely to differ–Order all 3

Q on Credit Report?

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Credit Score• Number (300-850) that reflects information in

your credit report• Determines how much you pay for credit

–Higher score = lower cost credit–http://www.myfico.com/HelpCenter/FICOS

cores/Curious.aspx–Table shows $ impact of credit score

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Credit Score

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Retrieved from MyFico.com May 17th 2013

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Who Determines your Score?

• FICO=Fair Isaac Company http://www.fico.com–The 1st, most common, most important

score–Average is 692; range:300-850

• Average changes with time–Each CRA also calculates & sells own

score

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FICO Score• Based on:

– Payment history (35%)– Outstanding loan balances (30%)

• Credit utilization ratio– Length of credit history (15%)– Inquiries (10%)– Types of credit (10%)

• Variety is good: credit cards, vehicle loan, mortgage• Avoid finance companies

Credit Score Costs• FICO score: $19.95• Experian: $7.95

Equifax: $15.95Transunion: $9.95

• Costs as of June 2012

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Estimate your FICO Score • Range: 300-850

– http://www.bankrate.com/calculators/credit-score-fico-calculator.aspx

– Answer 10 Q to estimate your score• About FICO Scores

http://www.myfico.com/Default.aspx– Map shows average score by state– What is a FICO score?– Understanding credit

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Beware of Scams• Debt relief companies• Credit repair scams

–Claims to repair your credit are just not true. –Only time, effort and repayment will improve

credit report & score • Focus on paying current bills on time

Summary• Order free credit report today• Build a strong credit history• Use credit cards prudently

–2 cards are enough–Pay in full at end of month or be a debt

slave for life

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Resources• Federal Trade Commission: credit & loans

– http://www.ftc.gov/bcp/menus/consumer/credit.shtm• Housing & Financial Counseling @ USU

Family Life Center http://www.usu.edu/fchd/housing

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First time homebuyer workshops• USU Family Life Center Housing & Financial Counseling

http://www.usu.edu/fchd/housing/• 435-797-7224 to register• 8:30 am. to 4:30 pm first Saturday• July 13th

• August 3rd • September 7th

• October 5th • November 2nd • December 7th

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Upcoming FPW• July 10th: Saving for college with 529 college

savings plans• August: No Meeting! Enjoy your Summer Break• September 11th: “Social Security and Retirement

Timing,” with guest speaker and financial planner Suzanne Dalebout– Evening program will be at the Logan City library in the

Bonneville Room.• October 9th and November 13th: TBA

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Where to Find FPW• www.usu.edu/fpw• http://fpwusu.blogspot.com• http://www.facebook.com/FinancialPlanningforWom

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