Introduction Banks will often loan you

more than you can really afford

Creating a budget will help you determine how much you can afford to borrow

Maintaining a budget will help you achieve any financial goal

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Budgeting is ImportantWith a Budget No Budget

Reduced Stress

Better Quality of Life

Peace of Mind

Comfort in knowing your finances are properly managed

75% of Americans live paycheck to paycheck

Money is the #1 cause of divorce in America

Less than 10% of high school graduates receive a financial education in school

3Budgeting

What is a budget?More ideas

A financial plan

A list of expenses and income

A financial road map for the future

An action plan

A way to avoid going broke

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Why should you have a budget?

Budgets …

Stop you from overspending Help you get out of debt & save money Give you peace of mind Help you determine what is important to you Help you meet your financial goals Help your family focus on common goals Decrease family conflict

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Tips for Creating a Good Budget

The most important things to remember:

Spend less money than you make. Maintain savings.

Other tips: Detail, detail, detail Make sure your budget tracks all your expenditures Remember, a budget is an action plan Include a contingency category to cover unexpected

expenses

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Track your Spending

One way to do this is to create an envelope for each category in your budget

Put the receipts in the correct envelope at the end of each day

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Spending is About Choices

If you don’t have a budget, your latest whim or emergency will make the choice for you

With a budget, you prioritize spending so that your money is used on what you value

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Lifestyle & Family Decisions

You will need to make some financial choices

Most of us don’t have enough money for everything we want

Remember that what is right for your family may be very different from what is right for other families

A budget allows your spending to be in line with your financial goals

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Other Considerations

Do you have elderly parents you need to consider?

Do you have college-bound children?

Do you or family members have disabilities?

Do you have to pay for …

Tutoring?

Athletics?

Childcare?

After-school programs?

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Expenses that Lenders Don’t Count

When lenders decide how much you can afford to borrow, they don’t include:

Childcare or after-school care

Elderly parents

Tuition expenses

Disabilities

Tutoring

Athletics

Vacations

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Everyone Must Participate in Household Budgeting

Who spends money in your household?

Partner/Spouse

Teenager

Parent

Other household members

Everyone who spends money needs to be part of this process

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Have a Plan

Your budget is your plan forthe future

Now you know how to create a budget and determine an affordable monthly payment

Don’t shop for houses or loans until you have a budget in place and know what you can afford to pay

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How do you qualify for a loan?

The underwriters will look at:

Debt-to-Income Ratios

FICO score & credit history

Adequate collateral for the loan (down payment)

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Debt to Income Ratios

There are two key ratios:

“Front-end” ratio

What portion of your income is used for your mortgage payment?

“Back-end” ratio

What portion of your income is used for all debt payments?

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Calculating “Front-End” Ratio

Front-end example: Total monthly mortgage payment = $1,000

Total monthly gross income = $4,000

$1,000/$4,000= 0.25

Front-end ratio = 25%

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Calculating “Back-End” Ratio

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Back-end Example:

Total monthly loan payments of all kinds (including mortgage) = $1,500

Total monthly gross income = $4,000

$1,500/$4,000 = .375

Back-end ratio = 37.5%

Borrowing

Overall Debt Ratios

According to Example:

Front-end/Back-end

25%/37.5%

These ratios are good ones that should qualify for a loan

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Three reasons for YOU to budget

List three ways a budget would help you.

Be as specific as possible.

1. How a budget can help me #1

2. How a budget can help me #2

3. How a budget can help me #3

4. What challenges prevent you from maintaining a budget?

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Classroom activity

Best Way to Create a Budget

You won’t have a good budget until you really know what you spend your money on.

Keep track of all spending for 30 days

Keep all your receipts for 30 days

Organize your receipts

Separate into different categories

Total your expenditures in each category at the end of the month

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Classroom activity

Homebuyer Education

Teach future homebuyers about the home buying process

Classes offered every other month (odd months)

8 hour HUD-approved course

Collaboration with Las Positas College

Financial Literacy Education

Group classes offered every other month (even months)

Two sessions

Understanding credit

Budgeting

Expanding outreach to emancipated foster youth and other at-risk youth and young adults

One-on-one counseling to prepare for homeownership

141 N. Livermore Ave.Livermore, CA 94550

(925) 373-3130www.tvhoc.org

“Working to Promote Housing in the Tri-Valley”