USDA, RURAL
DEVELOPMENT
HOME BUYER
EDUCATION CLASS
Agenda
I. Why Are You Here?
II. Renting vs. Buying
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 Budget
Movers
Various Closing
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
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.
Ten Basic Rules of Money
Management
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
5. Don’t Allow
Expenses to
Exceed Income -
Avoid paying only
the minimum on
your charge cards.
Don’t 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.
Ten Basic Rules of Money
Management
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
8. Distinguish the
Difference
Between Wants
and Needs - Take
care of your needs
first. Money
should be spent for VS
wants only after
needs have been
met.
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. Don’t allow
your credit payments
to exceed 20% of
your net income.
Ten Basic Rules of Money
Management
10. Keep a
Record of Daily
Spending
Expenditures - Be
aware of where Diary
your money is
going. Use a
spending diary to
assist you in
identifying areas
where adjustments
need to be made.
Indicators of Unacceptable
Credit
No Credit History
Payments on any
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.
Indicators of Unacceptable
Credit
Outstanding collection
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
PAID IN
Non-Agency debts FULL
written off within
the last 36 months,
unless the debt was
paid in full at least
12 months ago.
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
Indicators of Unacceptable
Credit
Where an applicant
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 free-
flowing 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.
502 Direct Loans:
All direct loan programs
Apply directly with
All applicants will
Rural Development
be reviewed for
33 year term
participation with a
Fixed interest rate local lender.
Qualifying ratios for All applicants will
low income:
be considered for
33% PITI 41% “SHIP” down
MOTI payment assistance
Qualifying ratios for as needed.
very low income:
Must have good
29% PITI 41% MOTI
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