Webinar:

How to Buy a Home with
Little or No Down Payment In Today's Market

Peter Thompson

Introduction by JenI would like to introduce Peter Thompson who will be conducting this webinar today. Peter is a senior loan officer with the PT Mortgage Group, and a first time home buyer specialist. He has been in the mortgage business for over 19 years and is acknowledged as an expert in the industry. He has been quoted in the Chicago Tribune, Chicago Sun Times, CNN and news papers across the country. His entire approach to home buying is that education matters. He writes regularly about the issues that are important to first time home buyers on his blog at ptmortgage.com, and this seminar is an extension of that mission.

Pete:Thank you Today I want to cover the issues that matter the most to you as you start the process of buying your first home:

Should you buy?

Does it make sense to buy a home?Is now a good time to buy?What can you do to qualify for a mortgage and make sure you get the best deal for you?What can you do to avoid the traps that ensnare so many fthb?

This is a lot of information and we dont have a lot of time, but I will make sure to save some time for questions at the end. If you have any questions please write them in the chat box, or wait until the question and answer period at the end of the presentation.

Advantages to Home Ownership

Tax Benefits

Equity Build-up

Appreciation

Advantages of owning your own home If you are starting to think about buying a home, the first question you have to ask yourself, is why? Weve all been told that home buying is a good thing to do, and there are a lot of personal reasons why you should want to buy your own home. Home ownership gives you personal control. It means you have a place to call your own. It allows you to put down roots in your community and is an extension of who you are. But there are also some real strong financial reasons to buy: Tax benefits One of the key advantages of real estate is that with tax benefits it cost less to own a home then it does to rent for the same dollar amount. The reason is because the government subsidizes real estate through tax breaks for home owners. All the interest you pay, the real estate taxes and in some cases the mortgage insurance are tax deductable. What this means to you, is that a $2,000 total mortgage payment is really equivalent to a rent of around $1,400. So Uncle Sam is helping you pay the mortgage each month.Equity build up This is another big benefit of owning your home. With a typical mortgage each payment is broken down into principal, or paying back the amount you are borrowing, and interest, the cost of the loan. The interest is based on the amount of principal left, so each month the interest is a little lower and the principal amount grows a little more. In the early years you are paying mostly interest, but this changes over time. As first time home buyers you arent likely to pay the loan off entirely before moving, but this is like a forced savings plan and it makes a big difference over time. Appreciation - It used to be that if you bought a house now, you would always expect that it would be worth more down the road. The last few years have proved that wrong. Those who bought their homes back in 2005 or 2006 have lost a lot of value and homes now are priced much lower than they were a few years ago. But new home construction has almost stopped, and at some point the supply of homes will balance out with the demand and home prices will start moving up. Because you usually only put down a small down payment when buying a home, the increases in price are leveraged.

Advantages to Home Ownership

AppreciationExample:$100,000 home10% down = $10,000Over the Next 5 Years10% increase = $10,000Home value now $110,000Equity has doubled100% return!

Here is an example of how this works. Lets say that you bought a house for $100,000 and put 10% down, or $10,000. Lets say that over the next 5 years your home goes up in value by 10%. The new value is $110,000. You only invested $10,000 in the first place, so that 10% increase means equity had doubled, a 100% return. That is the power of appreciation, and the reason people are able to trade up to bigger homes over time. When home prices start going up again, this will be a big advantage.

Advantages to Home Ownership

Personal Control

If you continue to rentwhere will you bein 5 years? in 10 years?

Another big benefit is control. If you buy a home that is undervalued, as so many homes are today, that means you are starting out with more value right away. You can also increase the value by making improvements on your home. If you buy a home that needs some work, you can often increase the value by just cleaning up and doing minor repairs. And last - If you continue to rent, where will you be in 5 years? 10 years? Real estate is still the best way to build wealth and help your overall financial situation.

Reasons to Buy a Home Now

First-time home buyers tax credit

Historically low interest rates - going up soon

Large inventory of homes to select from

Buyers market with home prices at bargain levels and sellers flexible on terms

Programs available with low down payments and great rates is getting more expensive

These are all reasons to buy a home anytime, but there are some special reasons why RIGHT NOW may be the best time to buy a home This may not make sense for a lot of people. The economy is a mess. Unemployment is high. Foreclosures are a big problem and the future is uncertain. But my own feeling is that this may be the best time to buy a home weve had in years, and it may be the best time to buy for years to come. This is what is happening now -First time home buyers tax credit This has been extended so that you have to have the property under contract by April 30th, and you have until June 30th to get your financing together and close. The tax credit is worth 10% of the sale price up to a max of $8,000. So if your home is over $80,000, the tax credit is $8,000. There are some income caps but most first buyers will qualify for the full credit. The credit is given to you as a check after the closing, and you can use this for anything you want or need.We have historically low interest rates, which are likely to go up soon Rates over the last year have been at record lows, but most experts expect that rates have to go up. Here is why. At the end of 2008, when the financial markets were collapsing, mortgage interest rates were near 6.0%. If you remember the mood back then, fear was in the air. The FED (Federal Reserve Bank) stepped in at this time with an unprecedented action. They started a program of buying mortgage backed securities, initially for $750 billion dollars, and then increased the program to 1.25 trillion. Well, theyve already spent most of that and the program is scheduled to end after the first quarter of 2010, that means next month. The FED has said several times that they wont renew it. So sometime soon, probably before the program officially ends, unless someone else steps in and takes the Feds place in buying these mortgage bonds, rates are going to move up. Estimates are this will mean rates are higher by to of a point still great rates, but not all time lows. Higher interest rates mean higher payments for you.Large inventory of homes to select from there is a lot to choose from now, so you can find the home thats right for you.This is a buyers market with home prices at bargain levels and sellers flexible on terms you are in control now and the leverage is on your side, not the sellers. This means that not only can you negotiate better prices, but you can get the terms you need, like getting the seller to pay for all your closing costs.There are now programs available where you can buy with low down payments and great rates but these programs are getting more expensive. Mortgage guidelines have tightened continually over the last few years. Recently FHA, which is the most popular program for first time home buyers, announced that they are increasing their fees as of the beginning of April. More changes are still on the way.

Is now the best time for YOU to buy?

Personal Assessment

Is your job stable?

Any upcoming family or personal life changes?

Are you ready for the responsibilities of home ownership?

Are you comfortable putting down roots in your community or prospective community?

Is now the best time for YOU to buy?Are you ready to buy now? Take a personal assessment of where you are now, and where you expect to be over the next 5-7 yearsIs your job stable? Do you expect your family or personal life to change soon? Are you ready for the extra responsibilities of home ownership? Real estate is a long term investment. If you arent prepared to hold on to your home for at least several years, it may not make sense to buy. Buying a home gives you roots in your community if you arent ready for it, it could be an anchor

Are you in a position to buy now?

Financial Assessment

How is your credit rating?

Are there existing expenses you can reduce?

Have you budgeted to determine how much you can really afford?

Do you have a savings plan?

Other things to consider Are you in a position to buy now?How is your credit rating now? Are there things you need to take care of before buying a home?Are there expenses you can cut down on? In the early years home payments may be higher than rent, have you budgeted how much of a payment you can really afford?Do you have a savings plan? There are ways to buy with no money out of your own pocket, but it is easier and you have more control if you have savings and your budget is under control.

Steps to Buying Your Own Home

Mortgage Pre-Qualification

A short conversation
with a qualified loan officer to determine what you can afford

Evaluation of credit, income, and down payment.

Approval through automated underwriting systems

Steps to buying your first home Once youve decided to buy your own home First step mortgage pre-qualification Can you qualify for a home mortgage loan?

How much of a home can you afford how much of a mortgage can you afford? The first step is a short conversation with myself or another qualified loan officer I look at it this as a game of 20 questions. I need to ask you all about your financial situation, your goals and what you are hoping to accomplish by buying a home. The more I know about

Mortgage pre-qualification is based on 3 things credit, income qualification and down payment. Actual approval is done through automated underwriting systems, but the approval is based on these factors

Mortgage Pre-Qualification

Evaluation of credit

FICO scores: 350-850 rangeFHA requires 620 minimum score

Do you pay your bills on time?

Credit Balance vs. Credit Limit
Increase score by lowering balances

What is you mix of credit?

Length of credit

Credit inquiries

Credit What does my credit report say, and how will a mortgage banker look at it?
Poll? Fico scores 350-850 range, the higher the better. Most people will fall in the 600s and 700s. For FHA you will need at least a 620 score. For conventional they have pricing add-ons based on your score, so in most cases you will need at least 680 and 740 or over to get the best pricing. Fico scores are broken down into five categories:Do you pay your bills on time? What is your balance compared to your max credit limit? Usually the quickest way to increase your score is by lowering credit balances.What is your mix of credit? Length of credit. Credit inquiries

Mortgage Pre-Qualification

Evaluation of credit

Dispute credit mistakes to improve your credit score

Rapid re-score

How to dispute your credit and improve your credit score. If you have some mistakes or issues on your credit report, there are ways to improve your score. I will send information on how to do this after the call.

Rapid rescore if problems show up and you dont have time to do the clean up on your own.

Mortgage Pre-Qualification

Evaluation of Income

Determining usable income

Ratios: housing / debtHow much can you safely afford?

Installment debts of less than
10 months don't count

Income qualification Usable income specific guidelines on what income is usable, and what isnt.Ratios housing and debt. How much can you afford? All programs have stated ratios With FHA you may be able to qualify for more than you can safely affordInstallment debts of less than 10 months usually dont count against you.

Mortgage Pre-Qualification

Assets and Down PaymentDown payment, closing costs, and
pre-paids

3.5% cash down payment for FHA

Sources:

Savings

loan against / liquidation of 401k

Tax refund

Sale of major assets

Gift from family member
(paid back after tax credit refund)

Ask seller to pay closing costs

Assets and down payment - We need to show enough cash to pay for not only the down payment, but closing costs and pre-paids (money to set up the escrow accounts, basically book keeping expenses which will often be off set by credits from the seller at closing). The truth is that buying a home is expensive. The title, bank fees and transfer taxes run into the thousands you dont need to save all the money yourself, it is common to negotiate for the seller to pay these items, but you do need to understand exactly how much it all will cost. Thats something your loan officer will be able to help you with as part of the pre-qualification.Cash needed Down payment 3.5% for FHA. Where can this come from? Savings, loan against or liquidation of 401K, tax refund, sale of major assets, gift from a family member (this can be paid back later after tax credit refund). With FHA all the funds can come from a gift, but we need to document everything correctly. Paper trail for any large deposits.Ask the seller to pay closing costs this minimizes the cash you need out of your own pocket and lets you use the cash where it will make the most sense.

Mortgage Pre-Approval

You have selected a program

You know your price range

You have provided required documentation for the application: pay stubs, W2s and bank statements

Your credit is assessed and approved by the automated underwriting system

Once you have been pre-qualified, and you know the price range to look in and what the best program will be for you, the next step is to be pre-approved. This just means that we will take the information you gave us as part of the pre-qualification, get all your documentation (pay stubs, W2s and bank statements) and run credit and run through the Automated Underwriting System. We will put together an estimate of closing costs road map to what you will need.

FHA Program for First-Time Buyers

Low down payment

All cash can be a gift

Up to 6% of sale price can come from seller concession (all closing costs)

FHA guidelines are more lenient

Competitive interest rates and terms- better for most home buyers

Condo buyers can buy with a lower down payment and no extra price hits

Most borrowers can qualify for a higher amountcontinued...

Over the course of this webinar, Ive mentioned FHA several times. The reason for that is that for most first time home buyers, FHA is the best program, and the one you will most likely buy with. FHA is a government backed loan program which is designed to allow more low and middle income buyers afford to buy homes. A couple of years ago, this program was just a little slice of the over all mortgage market. But as conventional guidelines tightened, and mortgage insurance companies restricted their business to only the most qualified borrowers, FHA has become the go-to program for anyone who doesnt have a large down payment or perfect credit. Heres why FHA is the best program for most first time home buyers:

Low down payment All cash can be from a giftUp to 6% of sale price can come from seller concession (all closing costs) this changes to 3% after April 1st but that is still enough for most situations.FHA credit guidelines are more lenient and common senseCompetitive interest rates and terms comparable to conventional better for most home buyers.Condo buyers can buy with a lower down payment and no extra price hits.Most borrowers can qualify for a higher amount with FHA

FHA Program for First-Time Buyers

Allows non-occupant co-borrowers (co-signers)

203k program available for homes that need remodeling or repair

FHA mortgages are assumable, helpful when you want to sell years down the road

Allows non-occupant co borrowers (co-signers) so you can blend income203k program is available for homes that need repairs and remodeling. FHA mortgages are assumable, which will help you when you want to sell years down the road.

When you are getting your pre-approval together, check to see if you qualify for the MCC bond program. This isnt a mortgage, but a way for moderate income buyers to take advantage of a state bond program which allows you to write off more of your mortgage payment on your taxes.

During Your Home Search

Ask yourself:What areas do you want
to live in?

Close to job? Fit your lifestyle?

What type of home:

condo, single family, 2-4 flat?

How is the school system?

A good investment for reselling
years down the road?

Condition of the property:good or a fixer-upper?

Once you have been pre-approved and know how much you can afford and the best way to finance your home, you are ready to start looking at properties.Here are some things to keep in mind with your home search What areas do you want to live in? Close to job, fits in with your life style. What type of home Condo, single family, 2-4 flat different qualification for each type.Schools even if you dont have kids, good schools mean good resale value.When you buy look to what others will want to buy down the road.Condition of the property is it ready to move in, or can you do work yourself if you need to. Special note on Condos a lot of you on this call will probably buy condos. Condos are usually a great fit for first time home buyers because they suit your life style best. But condo qualification is a little different than it is with a single family home or town home. The financial health of the building is just as important as your qualification. You need to make sure that the condo you are interested in is going to be able to be financed. The best way to do this is to have me, or the loan officer you are working with, send over a condo questionnaire and do some research before you get too serious about the property. I mentioned before that FHA is a great way to buy condos, but in the condo has to be on the FHA approved list, or the seller or developer has to apply to HUD to get their condo approved. A lot of properties are going through this process now, but you will want to find out if this is a possibility early on and not waste time looking at condos you wont be able to get financing for.

How do you start looking?

Online Listings

Print Publication Listings

Posted Signs

Realtor

How do you start looking?Online is a good place to start, and there are a lot of places where you can do free home searches. But once you are serious, you need a Realtor

Benefits of Using a Realtor

You don't pay them anything- they are paid by the seller.

A Realtor has access to the multi-listing service.

A Realtor knows the market, and why something that looks like a bargain may not be the best choice for you.

They can tell you both advantages and disadvantages of one home over another.

They usually negotiate better than you would yourself.

A Realtor can steer you through a safe course to the closing.

It's their full-time job. You benefit from their experience.

Benefits of using a RealtorYou dont pay them anything they are paid by the seller as part of the commission.A realtor has access to the multi listing service and can show you all the properties that fit into what you are looking for and can afford.A Realtor knows the market and can tell you why something that may look like a bargain, may not be the best choice for you. They can tell you both advantages and disadvantages of one home over another. They go through hundreds of homes each year, and they see things that most people wouldnt even notice.They can usually negotiate better than you would yourself.A Realtor knows the ins and outs of what can go wrong in a real estate transaction, and can help steer you through a safe course to the closing.For a good Realtor, this is their full time job, they can do it a lot better than someone who is trying to learn for the first time..

What to Look for in a Realtor:

Someone who knows the market you are looking in

Someone who has experience

Someone who works with First Time Home Buyersand is happy to coach you through the process

Someone you get along with and can relate to

What to look for in a RealtorSomeone who knows the market you are looking in.Someone who has experience. If you work with someone who is still learning the business, they are gaining experience at your expense. Everyone makes mistakes, especially when they are starting out at something. You dont want mistakes that could hurt you on one of the most important purchases of your life.You want someone who works with FTHBs. You may have a Realtor who is very knowledgeable and experienced, but it takes more work and more patience to work with buyers who are doing this for the first time. You are likely to be more cautious, have more questions and want more hand holding in general. This is normal. A lot of Realtors love to work with new buyers, it can be a real emotional lift to help someone buy their first home. Find someone that has this kind of mind set.Someone who you get along with and can relate to. You get to know someone pretty well while riding around in their car for a day. If you dont share the same values and connect on a personal level, this whole process can be excruciating.

Making the Offer

Everything is negotiable and it doesn't hurt to ask

Make sure the terms work for youExample: If tight on cash for closing, ask the seller to pay closing costs as part of the offer.

Accept / Reject/ Counter offer

What happens once you find the right home?Making the offer everything is negotiable, and it doesnt hurt to ask. Make sure the terms work for you. This is the time to check in with your loan officer again and make sure that you are structuring the offer to give you the best benefits. For example, if you are tight on cash to close, you want to make sure that you ask for the seller to pay closing costs as part of the offer. Once they agree to your terms it is too late to change anything. Your Realtor will help put the offer together and you have control over a lot of things. Its not just the price, but the terms. This means how much you will put down for the down payment, how much you will give them upfront as earnest money, the date of the closing and what items, such as window treatments and appliances, are included in the sale. Once you make the offer, the seller will come back with a response. This could be to accept the offer the way it is, reject it entirely, or counter the offer by changing the price and terms. The offers and counters are handled by the realtors, and this could go back and forth several times before you either come to an agreement or call it quits and move on to the next one. Negotiating a contract is exciting, but also stressful. If youve fallen in love with the house, its easy to let your emotions carry you away. If that happens youre likely to over pay or agree to terms that dont work for you in the long run. Try and relax through the process, take your time and stay focused. If you have a win-win attitude, it will make the whole process easier and more rewarding.

Short Sales & Foreclosures

Foreclosures: You are dealing with the bank, they often move slower than you would like.

If there are problems with the property, you are responsible for the fix.

Short Sales:Owner is selling for less than they owe the bank on their mortgage

Two-step process: 1) accepted by seller 2) bank approval

Have you Realtor do some research before you make an offer

Longer and more difficult if they have a second mortgage.

Be prepared to move on.

Short sales and foreclosures are a little different With foreclosures you are dealing with a bank, and they often move slower than you would like. You can negotiate with a bank just like you can with a private seller, but they may have to go through several layers of bureaucracy before you get an answer. If there are any problems with the property, dont expect the bank to fix them. What you see is what you get, and if any repairs need to be made, it is usually up to you.Short sales are a little more complicated. With a short sale the owner is selling you the property for less than what they owe the bank on their mortgage. So this is a two step process. First you get the contract accepted by the seller, then it is sent off for bank approval. This can go quickly, or take forever. A lot of it depends on where the homeowners are in the process. If they are already working with the bank and have a case manager assigned, and the bank has done their research and due diligence already, this could go fast. If they are starting from scratch expect a slow process. At the beginning of last year, when a buyer made an offer on a short sale it was like they threw the offer into a black hole and months went buy without them hearing a thing. It often goes quicker now, but each one is different. Have your Realtor do some research before you make an offer. If they have a second mortgage on their home, expect a more difficult time. This process has to be approved by both lenders, and if there is no equity the 2nd mortgage holder doesnt get a thing. So they may try and short circuit the deal in order to get something out of it. If you are planning on taking advantage of the home buyers credit and time is a factor, be very careful with short sales.

The Contract

Have an attorney review the contract

Update the documentation

Sign the application

Once you have a contract this is the time to shop around to make sure you are getting the best deal, working with your attorney, updating the documentation and signing the mortgage application. You will have a flurry of activity, and then it will be a waiting game until the closing. There is a lot more to cover here, but we are running out of time, and I do want to get to some questions.

Questions & Answers

Peter Thompson

Questions?

CONTACT ME

Cell: (630) 479-6424Fax: (630) 929-9787Email: ptmortgagegroup@gmail.com

Website: www.ptmortgage.comBlog: www.ptmortgage.com/blog

Facebook Page: PT Mortgage Group Mortgage Loan Services

Peter Thompson

Thank you for all your questions, but we are at the end of our hour. If you still have questions, please feel free to email them to me and I will answer individually, or join our face book group and post them there for answers. Please be sure to stop by my blog or subscribe for updates. I will be sending everyone a home buyers guide which covers this subject in more detail. I am also available for anyone who is ready to start the process. For a free, no obligation consultation, please give me a call or send me an email and we can set a time to go over your own situation, run your credit and see what the best options are for you. Thank you again for taking the time to attend, I hope this has been helpful.