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BUYING A HOUSE Are You Ready? BUYING A HOUSE Are You Ready?

Advantages of home Ownership • • Sense of stability and permanence Allows individual expression Advantages of home Ownership • • Sense of stability and permanence Allows individual expression Can have pets Financial Benefits – Equity -The value of a home less the amount still owed on the money borrowed to purchase it. – No further payments once loan is paid off other than taxes, insurance and maintenance costs

Drawbacks of Home Ownership • • • Financial risk Saving money for a down Drawbacks of Home Ownership • • • Financial risk Saving money for a down payment is hard Property values do not always go up Payments for a long time Limited mobility Can have high maintenance costs

Types of Housing • Single family Dwellings – Most popular type – Stands on Types of Housing • Single family Dwellings – Most popular type – Stands on a separate lot with a lawn and some outdoor space – Most privacy – Often the most expensive

More Types of Housing • Multi-unit Dwellings – Duplexes and townhouses – Each unit More Types of Housing • Multi-unit Dwellings – Duplexes and townhouses – Each unit has its own outside entrance • Condominiums – A group of apartments people own – Monthly fee to cover maintenance, repairs, insurance – Usually has a common recreational area

More Types of Housing • Cooperative Housing- Apartment style living owned by a non-profit More Types of Housing • Cooperative Housing- Apartment style living owned by a non-profit organization. Members of the organization pay a fee which covers rent • Prefabricated homes – Manufactured and partially assembled at a factory. Pieces transported to a lot and put togethere. – Often cheaper • Mobile homes – Fully assembled in factories – Can buy the land or rent it – Don’t usually increase in value

Affordability and Your Needs • Price – Determine how much you can afford • Affordability and Your Needs • Price – Determine how much you can afford • Down Payment – A portion of the total cost of an item that is required at the time of purchase. • Monthly payments for 30 years • Need to buy homeowner’s insurance • Consider what the interest rates are • Get pre-qualified so you know what you can afford.

More Needs • • Size and Quality – Big enough to fit your needs More Needs • • Size and Quality – Big enough to fit your needs In good condition Buy what you can afford –Then trade up Consider location – City – Country – Close to your work – Schools for your children

Hiring a Real Estate Agent • People who arrange the sale and purchase of Hiring a Real Estate Agent • People who arrange the sale and purchase of homes. • Good sources of information • Can negotiate purchase price • Can help arrange financing • When you buy or sell you need to pay them a commission of 3 -6 %

Price the Property • Listing price – The price the owner is asking • Price the Property • Listing price – The price the owner is asking • How long has the home been on the market? • What have similar homes in the neighborhood sold for? • How tight is the housing market? – Buyers market – Abundant supply of homes for sale – Sellers market – Shortage of homes for sale

More Pricing • Do the current owners need to sell in a hurry? • More Pricing • Do the current owners need to sell in a hurry? • How well does the home meet your needs? • How easily can you arrange financing • Make an offer – Seller may make a counter offer – If offer accepted then sign a purchase agreement which is conditional on the occurrence of certain events. – Pay earnest money – A portion of the purchase price to show the offer is serious • Held in escrow account where money is held in trust and applied toward the down payment.

Obtaining Financing • Down Payment- Suggest you put down 20% • Private Mortgage Insurance Obtaining Financing • Down Payment- Suggest you put down 20% • Private Mortgage Insurance – Protects lender in case buyer can’t make payments- 20 -25% of price, if a 20% down is not paid. • Once 20% has been paid the insurance is dropped.

More obtaining financing • Mortgage – a long-term loan extended to someone who buys More obtaining financing • Mortgage – a long-term loan extended to someone who buys property. • Borrower borrows from a bank, credit union, savings and loan or mortgage company. • Lender pays seller the amount of the loan • Buyer makes payment over a period of 15 – 30 years. • Home is your collateral

Interest rate factors • Size of mortgage also depends on the current interest rate. Interest rate factors • Size of mortgage also depends on the current interest rate. • The higher the rate the more you will have to pay each month

Paying Points • If you want a lower interest rate, you may have to Paying Points • If you want a lower interest rate, you may have to pay a higher down payment and points. – Extra charges that must be paid by the buyer to the lender in order to get a lower interest rate. – Each point equals 1% of the loan amount. • Suppose a bank offers a $100, 000 mortgage with two points, or 2%. Since 2% of $100, 000 is $2, 000, you will pay an extra $2, 000 when you get the loan to purchase your home.

Amortization • Loan is amortized – Reduction of loan balance through payments made over Amortization • Loan is amortized – Reduction of loan balance through payments made over a period of time. • The balance is reduced every time you make a payment. • Amount of payment is applied first to interest then to principal. • Sometimes can prepay to reduce how long you pay.

Types of Mortgages • Fixed-rate – conventional mortgage with a fixed interest rate and Types of Mortgages • Fixed-rate – conventional mortgage with a fixed interest rate and a fixed schedule of payments. • Adjustable-rate – variable payment mortgage where interest rate decreases or increases during the life of the loan. Most have a rate cap. • Convertible ARMs- buyer can change to a fixed rate during a certain period of time. • Government Financing Programs – FHA and VA help owners obtain low interest low down payment loans.

Home Equity Loans • A loan based on the difference between the current market Home Equity Loans • A loan based on the difference between the current market value of a home and the amount the borrower owes on the mortgage. • Called a second mortgage

Refinancing • Obtaining a new mortgage to replace an existing one. • Usually done Refinancing • Obtaining a new mortgage to replace an existing one. • Usually done to obtain a lower interest rate. • Has fees attached.

Closing Costs • Fees paid at closing • Title Insurance – Protects the buyer Closing Costs • Fees paid at closing • Title Insurance – Protects the buyer if problems are found with the title later. • Deed – Official document transferring ownership • Private mortgage insurance – protects lender from loan default. • Escrow Account – money set aside by lender to pay taxes and insurance.