Lesson 13 2 The Home-Buying Process Learning Objectives

Lesson 13. 2 The Home-Buying Process Learning Objectives LO 2 -1 Describe the steps in finding a home to buy and making an offer for it. LO 2 -2 Explain how to qualify for a real estate loan. LO 2 -3 Explain how to take title to property. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 1

Finding a Home and Making an Offer n Consider these factors when buying a home: n Location n Accessibility n Distance to employment n Type and quality of construction n Cost and effort of maintenance n Personal likes and dislikes n Make a list of the features you want. n Determine the price range you can afford. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 2

(continued) Finding a Home and Making an Offer n Finding homes for sale n Online n Newspaper classified ads n Multiple Listing Service (MLS) Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 3

Working with a Real Estate Agent n Before selecting a home to buy, look at many houses. n You can look by yourself or work with a real estate agent. n Real estate agents know the market, can help you find the right home, and will assist you with the purchasing, financing, and closing processes. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 4

(continued) Working with a Real Estate Agent n Commission n Real estate agents earn a commission income. n The commission is a percentage of the home sale price, usually between 6 and 8 percent. n The seller pays the commission, and the agents working for the buyer and seller split it. n As the purchaser, you do not pay the agents’ commission. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 5

(continued) Working with a Real Estate Agent n Visit houses with your agent. n Take notes about each house and neighborhood. n Do not make a decision on the spot. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 6

(continued) Working with a Real Estate Agent n Buying without an agent n If you are buying directly from an owner, you might be able to negotiate a lower price because the seller would not have to pay the commission. n You should seek advice from a professional, such as a lawyer, to be sure your interests are protected. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 7

(continued) Working with a Real Estate Agent n Prequalifying for a loan n One of the first things an agent will have you do is prequalify for a real estate loan. n You will fill out an application to see how much money you would be qualified to borrow. n This will guide you and your real estate agent to houses in your price range. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 8

Making an Offer n An offer is a serious intent to be bound to an agreement. n In real estate, when you make an offer to buy property, it is called an earnest money offer. n The offer is accompanied by a deposit called the earnest money. n Earnest money protects the seller in case you fail to meet the terms of the agreement. n A seller’s acceptance is a formal agreement to the terms of an offer, forming a contract between the parties. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 9

(continued) Making an Offer n If the seller wants to change any part of the offer, he or she makes a counteroffer. n A seller’s counteroffer is a rejection of the original offer with a listing of what terms would be acceptable. n In effect, it is a new offer made by the seller to the buyer. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 10

Real Estate Loans and Title n After you have come to an agreement with the seller, you will have to arrange for your loan. n To finance your purchase, you must: n Have funds for a down payment and closing costs n Meet certain requirements of your lending institution n Select the type of mortgage you want Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 11

Down Payment Sources n The most common sources of down payment money are personal savings and informal loans from parents or relatives. n Most lending institutions will not allow mortgage applicants to formally borrow their down payment. n Because the down payment can be $5, 000 to $10, 000 or more, many first-time home buyers have difficulty saving the money and must borrow it informally from parents or relatives in the form of a monetary gift, and submit a gift letter to the lender. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 12

Qualifying for a Mortgage n To qualify for a mortgage, you must complete an extensive loan application. n The financial institution will check your credit history, employment history, and references. n The lender will judge if you can handle the monthly mortgage payments, which as a general rule should not exceed 25 to 35 percent of your take-home (net) pay. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 13

(continued) Qualifying for a Mortgage n Real estate appraisal n The lender will also require a real estate appraisal by a certified real estate appraiser. n This is to assure the lender that the property is worth more than the amount of the loan it is making. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 14

Types of Mortgages n Two basic types of mortgages: n Fixed-rate mortgages n Adjustable-rate mortgages (ARMs) Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 15

Fixed-Rate Mortgage n A fixed-rate mortgage is a mortgage for which the interest rate does not change during the term of the loan. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 16

Adjustable-Rate Mortgages n An adjustable-rate mortgage (ARM) is a mortgage for which the interest rate changes in response to the movement of interest rates in the economy as a whole. n The rate for an ARM usually starts lower than the current rates for a fixed-rate mortgage. n The lender then adjusts the ARM rate based on the ups and downs of the economy. n The lender may decrease the ARM’s rate, but usually the rate goes up. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 17

Taking Title to Property n Title is legally established ownership. n A deed is the legal document that transfers title of real property from one party to another and is recorded as an ownership transfer. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 18

(continued) Taking Title to Property n Before you take ownership, you will want to make sure that the title is clear and free of any liens. n A lien is a financial claim against property. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 19

(continued) Taking Title to Property n A title search is the process of searching public records to check for ownership and claims to a piece of property. n When the title insurance company confirms that title is clear and all is as represented, it will issue title insurance. n A title insurance policy protects the buyer from any claims arising from a defective title. Chapter 13 © 2010 South-Western, Cengage Learning © 2016 South-Western, Cengage Learning SLIDE 20