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How Much House Can You Afford?
1
Source: Keys to Home Ownership: National Foundation for Credit Counseling
Be A Financial Trainer or Tamer
2
How Much
House Can You Afford?
2 ½ times your yearly income
(or maybe 3)
3
$ 40,000.00 annual income
x 2.5
$100,000.00 house
4
YOURBUYING POWER
• Your income
• Your existing debt
• Your down payment
• The interest rate
• Your credit record
• Mortgage term (length)
5
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
$ 40,000.00 annual income
12 months
$3,333.33 monthly income
X .28
$ 933.00 house payment
7Income
Increase Your Income and You
Increase The Amount of House You Can Afford
Income8
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
$ 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
Decrease Your Debt and You Increase The
Amount of House You Can Afford
Debt11
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
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
Increase Your Down Payment
and You Increase The Amount of House You Can
Afford
Down Payment
14
A Decrease In The Interest Rate and You Increase The Amount of House You Can Afford
Interest Rate
15
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
17
A Decrease In The Term of Your
Mortgage and You Decrease The
Amount You Pay For Your House
Mortgage Term
18
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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20
Monthly Mortgage Payment
P&I =?
PITI = ?
PITI + PMI = ?
T&I = ?
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
22
• 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
Terminology
25
• Government Insured Mortgages• Federal
• HUD• FHA
• VA• USDA
• RHS• State and local loan programs
How Much House Can You Afford?
26