Foundation Concepts:

1. In general, people can afford to pay approximately 30% of their income for housing expenses.  That means that a household with $90,000 in income can afford to pay $30,000 a year or $2500 a month (principle, interest, taxes and insurance).  If annual taxes are $9000 and insurance is $1200, it leaves $1650 a month to retire debt.  At 6% interest over 30 years, that means the homebuyer can afford a mortgage of about $275,000.  With a 10% downpayment, that means they can afford a house costing $300,000. 
   
   
2. Buying a home is likely the largest single purchase most households will ever make.  Consequently, it is a transaction that is best entered into with preparation and aforethought.  There are free, HUD Certified Homebuying Counselors available to help guide new purchasers through the experience.  The courses they offer will be informative and helpful as well as provide time for the potential purchasers to save money and repair any credit issues they may have.  Such counselors will also be aware of any downpayment assistance that the purchaser may be eligible for.
   
   
3. Home ownership can have positive financial impacts on families.  The combination of purchasing an asset that tends to increase in value over time and the preferential tax treatment that homeownership receives can make it a powerful tool to build household wealth. 
   
   
4. In general, a 30 year fixed rate mortgage is the preferred choice.  Although adjustable rate mortgages may have more attractive initial rates, the changing nature of the payments makes it difficult for many households to plan and budget for these shifting amounts.  Coupled with ever increasing property tax payments, and salary levels that often held flat, adjustable rate mortgages can quickly move a family out of their financial comfort zone.  In the past few years there have also been a number of exotic mortgage products that have come to the marketplace to the detriment of consumers.  Interest only mortgages, or mortgages that allow for negative amortization are products that strip wealth, rather than build it. 

Discussion Questions:

What are some of the advantages and disadvantages of home ownership?  Under what conditions might it be preferable to continue to rent?

What are some of the different types of homes that the couple discusses and the advantages and disadvantages of each:

• Single family
• Co-op
• Condo
• 2 Family
• Fixer upper

What types of financing might be available to them and which do you think would be most advantageous?  What questions do you think it is very important they ask about their mortgage before they sign the agreement?

What are some steps you could take now to prepare for homeownership in a year or so?  How much money do you think you will need to have for the down payment and closing costs?  How much of that amount do you have right now?  What steps will you need to take to get the rest of it?

What are some of the responsibilities that homeowners have that renters do not?  How much do you think it might cost each year to maintain your home?  Would you be able to do outside chores like snow removal, cleaning out the eaves, mowing the grass and trimming the shrubs yourself or would you need to hire someone to do it.  What about simple home repairs like fixing a running toilet, repainting a room, changing furnace filters or replacing a light fixture? 

Activity:

Ask participants to take their income times 2.5 – this is a rough approximation of how much house they can afford to buy.  Then pass around the Sunday Real Estate and let people see how much house their income can buy.  Point out that there are new and existing affordable housing developments that are lower cost, but that demand exceeds supply and it is important to get on the list in your area to make sure you hear about upcoming opportunities.  The municipal planning or community development department should be able to provide more information.  In Westchester County, NY participants can be referred to Housing Action Council, 914 332 – 5229.