Foolproof Module 10 notes Questions and Answers Latest Updated

Foolproof Module 10 notes Questions and Answers Latest Updated Many adults who get a mortgage and buy a home don't have any idea what they are doing. They waste tens of thousands of dollars because they don't know the simple truths you will be learning here. A lot of high school students' lives are hurt because their parents make bad home decisions. What you learn here can help the adults you respect and care about. Here are seven good reasons to buy a house: - You're settled in a town and like it. - You're successful in your job and think you have a good future with your company. - You have a settled home life. - Your credit is in good shape. - You do not feel stressed financially. Even though you may not make a lot of money, you do make enough to be able to save some. - You have a good bit of money you can use for a down payment. - The housing market in your town is a "buyers market": Prices are low for buyers. House Poor: You thought you could afford the home because you were preapproved for the loan. - But you can barely afford to make the payment each month. - You have no money left for a better car. - You can't afford to ever take a vacation. - You can't save any money. You need every dime just to pay bills. Collateral: Something you own worth money that guarantees you will pay back the loan. Don't pay the loan, and you normally lose your collateral. - An example of collateral: When you buy a car, you normally use the car as "collateral" to guarantee you will pay back the car loan. - Stop paying and you will lose your car. - Another example of collateral: A place you buy. - Homes are used for collateral on your home loan. A Home Mortgage: A loan used to buy real estate. The property itself is used as collateral to guarantee you will pay back the loan. Stop paying your mortgage payment and you will most likely lose your real estate. Mortgage Insurance: An insurance policy that says the insurance company will pay your mortgage if you are unable. Qualifying for mortgage insurance makes it much easier for you to get a mortgage loan. A Lender: The company or person who actually puts up the money for a mortgage. The Mortgage Company: The company that gave you the loan. A Mortgagor: That's you! You are the person borrowing money. The Borrower: That's you, too. When you get a mortgage you have definitely borrowed money! Mortgage Default: Short definition: You're in trouble. You're failing to pay your mortgage payments. Loan or Mortgage Fraud: When you lie on your loan application you are committing loan fraud. - Lying about your income or your job on a federally insured loan application is a crime. - Lying on any loan application - lying on a loan for a car or a credit card can have very bad consequences for you. - Even if someone tells you to lie on the application, you are the person actually committing the crime. - The person who told you to lie may not be committing a crime. - Bad news: A lot of people involved with loans will encourage you to lie on your loan application. Why? They have nothing to lose. You do. - Do not lie on loan applications, EVER! Mortgage Broker: A mortgage broker is a person who brings together the borrower and the lender. Wow, is this an important term for you to learn. You will need to understand why mortgage brokers normally have no risk in the mortgage process. The broker normally doesn't loan you the money. The mortgage broker doesn't sell you the property. The mortgage broker simply brings the home buyer and the lender together. The mortgage broker normally has no risk in the mortgage process. The mortgage broker is paid for bringing together a person that wants to get a mortgage and a company that wants to sell a mortgage. Mortgage brokers usually get paid a percentage of the mortgage loan. The bigger the loan, the bigger their paycheck. Mortgage brokers get their money whether or not you make your mortgage payments, or can afford your mortgage payments. Mortgage brokers get paid even if you default on your loan. Mortgage brokers have nothing to lose by encouraging you to get a bigger loan than you may be able to afford. Does this mean all mortgage brokers are bad? Definitely not! Most mortgage brokers work hard to do what is best for you. But it is hard to tell the good from the bad mortgage brokers if you don't know the basics of the mortgage broker business. Many consumer advocates think that bad mortgage brokers were one of the reasons the world economy nearly collapsed a few years ago. Why? Many bad mortgage brokers talked people into getting larger mortgages than they could afford. They even encouraged people to commit loan fraud and to lie about their income. The result? Millions of people could not afford their mortgage payments. Some were even charged with fraud. We're going to walk you through the basic steps a smart person takes when they think they are ready to buy a place. And here are the facts. Learn this basic approach to home buying, and you will know more about home buying and mortgages than most adults - probably more than your parents. And you will definitely be a smarter smarter spender, period...even before you buy a home. (look at definition below) The first step when you're in the market to buy a home: Determine how much you can afford to spend. - Don't even think about looking at a place to buy until you understand your budget. - Maybe you can get a big place. - Maybe you'll need to live in a tent. - Developing the right budget tells you clearly what you can afford. - Get your budget wrong and everything else will go wrong in your home buying process. Finding good mortgage advice. 00:00 00:51 If you ask the people who want to sell you a mortgage to help you develop your budget you may get bad advice. 00:04 Some mortgage people want you to think you can afford more than you really should be paying. 00:09 They do this because many mortgage companies pay their sales people a percentage of the total mortgage. 00:16 00:51 Many mortgage sellers are doing their job. Making money for themselves or their boss and not looking out for you. 00:29 00:51 It's your job to figure out your budget! When buying a home go to the mortgage and home buying guide on FoolProofM 00:36 Is There Anything Wrong With Mortgage People Wanting To Sell A Big Mortgage? No, but that attitude means most mortgage people are focused on the positive things they can say that will encourage you to do business with them. Many mortgage people are not normally focused on the negative things you should probably be thinking about. That attitude puts a big responsibility on you, the borrower: You must question the advice of strangers. Always take your time. Always gather other opinions and do your research. Are there guidelines on how much money I should be spending to buy a home? There are many types of guidelines. The most important guidelines help you determine how much you can afford to pay each month for a home. What you can afford to pay each month determines how much house you can buy. A monthly payment guideline is a valuable tool for getting a mortgage the correct way. The Problem Is: The Guidelines Aren't The Same: Bank of America once said that first-time home buyers shouldn't spend more than 45% of their GROSS income on a mortgage payment. At the same time, The New York Times said first-time buyers shouldn't spend more than 35% of their GROSS income. Many conservative consumer advocates said you shouldn't spend more than 25% of your TAKE-HOME PAY on a mortgage payment. How different are these three guidelines? Okay, let's say your gross pay is $3000 per month and your take-home pay after deductions is $2200. What did the different guidelines say you could afford to pay each month for a home? Bank of America said you could afford to pay $1350. The New York Times said you can afford $1050 a month. The conservative consumer advocate said you could afford to pay $550 a month. Because these are just guidelines - and guidelines can be very wrong. Plus, the developers of guidelines all have "agendas." For instance: 1) Bank of America makes mortgage loans. The bigger the loan, the more profit for BOA. BOA has an incentive to recommend you borrow more. 2) The New York Times does not make mortgage loans. It doesn't make money on mortgages. As an important newspaper, the Times tries to give "balanced" recommendations. 3) The conservative consumer advocate doesn't make money on mortgages. The job of a good consumer advocate is to help you make safe decisions, and the safest decision when it comes to spending is always to spend less. So, which recommendation do you follow? All are from legitimate sources. All recommendations are for one person with the same income. But one recommendation is $800 less per month than the highest recommendation! Ask yourself this question: Does the person or company providing the guideline make more money if I follow their guideline? If the answer is "yes," be careful! Question that guideline. Compare it to other guidelines. This rule works if getting a mortgage, financing a car or applying for a college loan. When in doubt, pay a lot of attention to the most conservative guideline.