Chapter 7

In-Class Notes

Selecting a Home and How Much Can You Afford?• Decide on the type of home you would like:

• House or condominium

• Consider the input of a realtor

• Consider using online realtor services

• Multiple Listing Service (MLS), ComFree

• Decide how much you can afford for a down payment and monthly mortgage payments

• Determine your criteria for selecting a home7-2Copyright © 2009 Pearson Education Canada

Valuation of a Home• Conduct a market analysis

• Evaluate the effects of business activity and zoning laws on valuation

• Obtain a second opinion if your analysis suggests the home is undervalued

• Negotiate a price

• Consider the advice of a realtor on the offer you should make

• Most sellers will accept less than the asking price7-3Copyright © 2009 Pearson Education Canada

Transaction Costs of Purchasing a Home• When you apply for a mortgage you will:• Make a down payment• Incur closing costs:• Home inspection and appraisal fee• Real property report• Land transfer tax• Legal fees and disbursements• GST• Title insurance• Interest adjustment• Prepaid property tax and utility adjustments• Homeowner’s insurance• Loan protection life and disability insurance

7-4Copyright © 2009 Pearson Education Canada

Mortgage Options• Fixed-rate mortgage• Specifies an interest rate for the mortgage

term• Monthly mortgage payments pay a portion of

the principal on your loan• Variable-rate mortgage• The interest you owe changes in response to

the market prime rate• Initial rates are generally low but will be

adjusted after a short period (such as one year)7-5Copyright © 2009 Pearson Education Canada

Decision to Own versus Rent a Home• Compare the costs of renting and owning a home• Costs of renting• Rent, tenant’s insurance, opportunity cost of security

deposit• Costs of owning• Mortgage payment, down payment, opportunity cost

of down payment, property taxes, home insurance, closing costs, maintenance costs, utility costs

• Home ownership offers the opportunity to build equity

7-6Copyright © 2009 Pearson Education Canada