Buying and Selling a Home

Section 7.3

The Home Buying Process

Buying a home will probably be the most expensive purchase you ever make.

You will need to determine your home ownership needs, find and evaluate a property to purchase, price the property, obtain financing, and close the transaction.

Step 1: Determine Your Home Ownership Needs

Consider the benefits and drawbacks of buying a home.

Consider the types of homes that are available.

Consider how much you are able to spend.

Owning a residence

Benefits Stability and

permanence Decorating freedom Financial benefits $ Value of home

usually rises Once paid off, you

don’t have to make any more payments.

Drawbacks Saving $ for down

payment is hard Property value may

decline Limited mobility Home maintenance

can be expensive

What are two benefits and two disadvantages of

owning a residence?

Types of Housing

Single Family

Dwellings

Sits on a separate lot

not attached to any other building

Multiunit Dwellings

Duplexes and

townhouses

Condominium

Groups of apartments

or townhouses that people own and not

rent

Cooperative

Housing

Pay monthly

fee which covers rent

and operating expenses

Prefabricated Homes

Houses made and partially

assembled at a factory.

Cheaper than

building a home on

site.

Mobile Homes

Rarely “mobile”.

Assembled at factories and moved

to home site.

What are 6 types of housing you may

own?

Affordability and Your NeedsPRICE AND DOWN PAYMENT

How much can you spend?

Look at your income Look at your expenses Do you have anything

saved for a down payment?

Talk to a loan officer at a bank to get approved for a loan.

SIZE AND QUALITY How big do you need

your home? What quality are you

willing to settle for?

TRADING UP Be willing to buy small and

“trade up” as you make more money and become more financially stable.

Step 2: Find and Evaluate a Property to Purchase

Select a location

Hire a real estate agent

Conduct a home inspection: you may

be able to get the house cheaper

Step 3: Price the Property

Determine the Price of the

HomeHow long has the home been on the

market?

What have similar homes sold for?

Do the owners need to sell in a hurry?

How well does the home meet your

needs?

Negotiate the Purchase Price

Offer what you are willing to pay

Seller may accept or reject

Seller may make counter offer

Seller and buyer may agree on price

Buyer may pay seller a portion of price

called earnest money.

Earnest money shows the offer is

serious. Money sits in an escrow account where

the $ is held and then applied to

the down payment.

What questions should you ask yourself when

determining how much to offer for a house?What is an escrow

account?What is a counteroffer?

Step 4: Obtain Financing Determine the amount of

down payment. Usually 20% of the purchase price.

If you do not have the 20% you will have to obtain PRIVATE MORTGAGE INSURANCE (PMI).

When the buyer has paid between 20-25% of the purchase price, the PMI insurance can be dropped.

PMI is a policy that protects the lender in

case the buyer cannot make

payments or cannot make them on time. You can usually elect to pay the cost of the insurance up front or

spread it over payments.

What are two benefits and two disadvantages of

owning a residence?

Step 4: Obtain Financing A mortgage is a long-term loan

extended to someone who buys property. The buyer will borrow money and will need to pay the lender payments (including interest).

Mortgages are usually 15, 20, or 30 years.

If you fail to make the payments the lender can foreclose or take possession of your home.

What is a mortgage?

Step 4: Obtain Financing

To take out a mortgage, you need to meet certain criteria.

Most lenders charge between $100 and $300 to apply for a mortgage.

The monthly payments on a mortgage are set at a level that allows amortization of the loan. Amortization is the reduction of a loan balance through payments made over time.

Obtaining a new mortgage to replace the existing one. If interest rates fall (from 8 to 4%) you may be eligible

to refinance to get lower mortgage payments.

A loan based on the difference between the value of the home and the amount the borrower owes on the

mortgage. (a 2nd mortgage)

Interest rate changes throughout the life of the loan according to economic factors. Your payment may go

up or down.

Mortgage with a fixed interest rate and a fixed schedule of payments. Payments are always the same

throughout the life of the loan.

Types of MortgagesFixed-Rate Mortgage

Adjustable-Rate

Mortgage

Home Equity Loans

Refinancing

What are 4 types of mortgages?

Step 5: Close the Transaction The final step is closing, which is a

meeting of the buyer, seller, and the lender of the funds (or a representative such as a lawyer).

At closing, documents are signed, last minute details are settled, and money is paid.

The buyer and seller must also pay closing costs.

Closing Costs for Buyer and SellerItem Buyer SellerTitle search fee $50-$100 $300-$900Title insurance $300-$900 $50-$1000Attorney’s fee $50-$1000 $100-$500Property survey ---- ----Appraisal fee $100-$350 ----Recording fees $30-$65 $35-$65Credit report $35-$75 -----Termite inspection $100-$250 -----Lender’s origination fee

1-5% of the loan -----

Real estate agent’s commission

----- 5-7% of purchase price

Insurance, taxes, and interest

Varies ----

What are closing costs?

Selling a Home Prepare your home for selling:

The better it looks, the faster it will sell.

Determine your selling price. An appraisal (an estimate done by a professional) will tell you what the house is worth.

Choose a real estate agent. They will attract buyers and show your home but are paid commission on your sale.

Sell it yourself.

Activity: Find a home On your index card is the future

occupation that you want to have. I have given you the average starting

salary for that occupation. GENERALLY, you can afford a house 2 ½

times your average salary. Search the internet for a house within your

price range in the area you want to live. Print out your house and calculate how

much your down payment would need to be (20%).