BUYING A HOUSEAre You Ready?

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 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 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 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 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 together there.– 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• 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• 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 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• 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?• 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 – 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 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.

• 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 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 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 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 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 to obtain a lower interest rate. • Has fees attached.

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.