USDA, RURAL DEVELOPMENT

HOME BUYER EDUCATION CLASS

Agenda
I.

Why Are You Here? Renting vs. Buying

II.

III. Preparing for Home Ownership A. Up-Front -- Closing Costs B. On-Going Costs C. Hidden Costs D. Repayment Ability Qualifying Ratios

Agenda (cont.)
IV. Credit Reports

V.

Shopping for a Home A. New Vs. Used B. Selecting a Realtor or a Builder

VI. Home Ownership Responsibility VII. RD Loans & Application Process

Up Front, On Going and Hidden Costs

Up-Front Costs will include:

Down Payment
Various Closing

Budget Movers

Costs

Moving Costs Settling in Costs

On-Going and Hidden Costs

Monthly Mortgage

Principal & Interest Real Estate Taxes (1 / 12 per month to Escrow) Homeowners Insurance (1 / 12 per month to Escrow)

On-Going and Hidden Costs

Maintenance

(A/C, wiring, plumbing, roof, yard, appliances, painting, floor cover, screens, windows, doors, driveway, etc.)

On-Going and Hidden Costs

Homeowners

Association Fee (if applicable)

Utilities -

(deposits, monthly payment for use electric, water, sewer, telephone, cable, etc.

Remember:
AS A

HOMEOWNER, YOU ARE NOW RESPONSIBLE FOR ALL MAINTENANCE EXPENSES

Available Cash and Assets:

List all of your sources of cash and other assets, then decide how much you want to apply toward up-front housing costs such as the down payment and closing costs.
Remember, you will want to reserve some of your assets for financial security. It is not a good idea to totally deplete your savings to purchase a home.

Amount Available for Up-Front Housing Costs

Checking Account $___________ Savings Account $___________

Mutual Funds, Stocks and Bonds $___________ Cash Value of Live Insurance Policy $___________ Cash Gifts from Relatives $___________

Amount Available for Up-Front Housing Costs

Value of Property Owned Other Assets $___________ $___________

Amount Available For Up-Front Housing Costs

$___________

How You Can Increase Your Borrowing Power!

Reduce existing debts (charge

cards, installment loans, etc.) Wait until income increases (raises, job changes, part-time jobs, etc) Put off Big Ticket items (car, furniture, vacations)

Qualifying Ratio or Housing Expense Ratio

Sample Qualifying Ratio:

House Payment (PITI)

PITI plus Existing debt

Gross Monthly Income

Gross Monthly Income

29%

41%

Ten Basic Rules of Money Management

1. PLAN - Plan for the future, major purchases and periodic expenses.
2. SET FINANCIAL GOALS Determine short, mid and long range financial goals

Ten Basic Rules of Money Management

3. KNOW YOUR FINANCIAL SITUATION Determine monthly living expenses and monthly debt payments. Compare out-going to monthly net income. Be aware of your total debt.

4. Develop A Realistic Budget Follow your budget as closely as possible. Evaluate your budget. Compare actual expenses with planned expenses, this should include MAD MONEY

Ten Basic Rules of Money Management

Ten Basic Rules of Money Management

5. Dont Allow

Expenses to Exceed Income Avoid paying only the minimum on your charge cards. Dont charge more every month than you are repaying to your creditors.

Ten Basic Rules of Money Management

6. Save - Save for

periodic expenses, such as car and home maintenance. Save 5 - 10 % of your net income. Accumulate 3 to 6 months salary in an emergency fund.

 7. Pay Your Bills On Time - Maintain a good credit rating. If you are unable to pay your bills as agreed, contact your creditors and explain your situation. Contact Consumer Credit Counseling for professional advice.

Ten Basic Rules of Money Management

Ten Basic Rules of Money Management

8. Distinguish the

Difference Between Wants and Needs - Take care of your needs first. Money should be spent for wants only after needs have been met.

VS

Ten Basic Rules of Money Management

9. Use Credit Wisely - Use credit for safety, convenience, and planned purchases. Determine the total you can comfortably afford to purchase on credit. Dont allow your credit payments to exceed 20% of your net income.

 10. Keep a

Ten Basic Rules of Money Management

Spending Diary

Record of Daily Expenditures - Be aware of where your money is going. Use a spending diary to assist you in identifying areas where adjustments need to be made.

 No Credit History Payments on any

Indicators of Unacceptable Credit

account which was delinquent for more than 30 days on two or more occasions within a 12 month period A foreclosure that has been completed within the last 36 months.

Indicators of Unacceptable Credit

An outstanding

Internal Revenue Service tax lien or any other outstanding tax liens with no satisfactory arrangement for payment.

Indicators of Unacceptable Credit

Two or more rent

payments paid 30 or more days late within the last 2 years.

 Outstanding collection

Indicators of Unacceptable Credit

accounts with a record of irregular payments with no satisfactory arrangements for repayment, or collection accounts that were paid in full within the last 6 months, unless the applicant had been making regular payments previously.

Indicators of Unacceptable Credit

Non-Agency debts

written off within the last 36 months, unless the debt was paid in full at least 12 months ago.

PAID IN FULL

Indicators of Unacceptable Credit

Agency debts that

were debt settled within the past 36 months, or are being considered for debt settlement. Delinquency on Federal debt.

Indicators of Unacceptable Credit

A court-created or

court-affirmed obligation or judgment caused by nonpayment that is currently outstanding or has been outstanding within the last 12 months, except:

Indicators of Unacceptable Credit

A bankruptcy in

which:

Debts were

discharged more than 36 months prior to the date of application; or

 Where an applicant

Indicators of Unacceptable Credit

successfully completed a bankruptcy debt restructuring plan and has demonstrated a willingness to meet obligations when due for the 12 months prior to the date of application.

Indicators of Unacceptable Credit

A judgment

satisfied more than 12 months before the date of application.

Indicators of Unacceptable Credit

An applicant with an outstanding judgment obtained by the United States in a Federal court, other than the United States Tax Court, is not eligible for a Section 502 loan. This requirement is statutory and cannot be waived.

Shopping for a Home?

The following questions should serve as a partial checklist for the prospective home buyer:

Outside the Home:

Are adequate

shopping facilities close by? Are Churches available and convenient Is the community well planned? Are police and fire protection adequate

Outside the Home:

Are schools located

to suit you? Is a hospital or medical center nearby? Are recreational facilities nearby? Are trash and garbage disposal arrangements adequate or frequent enough?

Outside the Home

Are there adequate

parking spaces or garage facilities for your needs? Is public transportation adequate and handy? Is there a reliable and drinkable source of water with adequate pressure?

Outside the Home

Is the sanitary

sewage disposal system reliable and adequate? What is the view out the front door? Are there eyesores? Do the neighbors appear to take good care of their properties?

Outside the Home

What is the traffic

like on neighborhood streets? A street empty of cars on Sunday afternoon may be clogged with traffic on weekday rush hours. If the streets are busy, are there sidewalks?

Outside the Home

Is the land well

drained? Are lots or units arranged to suit your family lifestyle? Has proper landscaping been done to prevent erosion?

Inside the Home

Do walls seem

sound and smooth, floors firm and level, carpentry well fitted and joined?

Is lighting good

during both day and night?

Inside the Home

Are rooms large

enough to accommodate your furniture and is there sufficient wall space for arranging furniture?

Inside the Home

Does the kitchen

have good lighting and ventilation? Are there enough outlets for plugging in all your kitchen appliances? Are there ample cabinets and counter work space for your family needs?

Inside the Home

Do doors, windows

and drawers work easily and safely?

Does plumbing work

smoothly and quietly with adequate water pressure and freeflowing drains?

Inside the Home

Is heating and

cooling and ventilating equipment satisfactory? Are there enough electrical outlets well arranged and sufficient amperage for your electrical equipment?

Inside the Home

Are temperature

controls located in safe and convenient places?

RURAL DEVELOPMENT LOANS

All homes must be located in a rural area

502 Guaranteed Loans

*30 year fixed rate. * Not subsidized. *Low to Moderate income group. *Can be either new construction or existing home. *Applicants should meet qualifying ratios of 29% PITI and 41% MOTI. *May qualify for SHIP down payment assistance as needed. *Apply directly with lender. *All applicants eligible for guaranteed loan who apply directly with Rural Development will be referred to a lender.

 Apply directly with

502 Direct Loans: All direct loan programs

All applicants will

Rural Development 33 year term Fixed interest rate Qualifying ratios for low income: 33% PITI 41% MOTI Qualifying ratios for very low income: 29% PITI 41% MOTI

be reviewed for participation with a local lender. All applicants will be considered for SHIP down payment assistance as needed. Must have good credit.

502 New Construction

May use any licensed

contractor. Rural Development does maintain a list of participating contractors. All new construction loans carry a one year builders warranty

502 Existing Home

No Warranty

Home must meet

the HUD Handbook Guidelines

502 REO PROPERTY

An existing home

which Rural Development has taken back through foreclosure.

502 Assumption/Transfer
An existing Rural

Development borrower who wishes to sell their home. No Warranty All homes must be in condition to meet HUD Handbook Guidelines

QUESTIONS?
RURAL DEVELOPMENT 863-533-2051 EXT. 4 http://www.rurdev.usda.gov/fl