Selecting and Financing Housing TipsAnalyzing Renting and Purchasing Alternativy

Your thoughts and selecting housing

• How you invest and money

• Every option = way of life statement

• Personal choices vs. economical factors

• Traditional economical guidelines:

• Spend no more than 25-30% of take-home pay on real estate, or

• No more than 2 1/2 times your yearly income

• More challenging to do in affordable city areas7-1

Choice should be based on:

– Way of life (do you like or want to do servicing tasks?)

– Financial aspects (e.g., budget, tax reductions, equity)

– Mobility vs. durability (are you able to “settle down”?)

– Renting = more affordable in brief run (monthly payment)

Assess Expenses and Advantages of Renting

7-2

Renting vs. Buying Housing

Advantages Disadvantages

Easy to move No tax benefitsFewer responsibilities for maintenance Limitations regarding remodeling

Minimal financial commitment Restrictions regarding pets, etc

Pride of ownership Financial commitmentFinancial benefits Higher living expenses than rentingLifestyle flexibility Limited mobility

Buying

RENTING vs. BUYING

Renting

7-3

• Choosing a lease unit• Apartment or house• Advantages of renting• Easier to move• Fewer servicing responsibilities• Minimal economical commitments• Disadvantages of renting• No tax benefits• “Money down the drain” (not developing equity)• Limitations regarding remodeling• Restrictions regarding animals and other activities

Rental Routines

7-4

• Information and deal with of property

• Name and deal with of the owner/landlord (lessor)

• Name of renter (lessee)

• Effective time frame and duration of the lease

• Amount of protection deposit

• Amount and deadline of rent

• Date and quantity for delayed rental payments

• List of involved resources, equipment, etc.

• Restrictions on certain actions (e.g., animals, remodeling)

• The right to sublet the unit; exchange clause

• Conditions under which homeowner may get into unit

Lawful Information of a Lease

7-5

Objective 2Implement the Home-Buying

Process

7-6

• Assess Home Possession • Balance of Residence• American dream/norm (personalized residing location)• Financial Benefits• Deduct residence taxation, home loan interest• Potential surge in value of your home• Building value in your home• Lifestyle Versatility – Can Show Your Individuality• Negative aspects of Homeownership

– Economical Uncertainty– Obtaining cash for the down payment– Obtaining home loan financing– Home principles could drop; can go “underwater” and reduce money– Limited Mobility– Can take the time to promote your home– Higher Residing Expenses (Than Renting)– Maintenance, painting, servicing, and residential improvements– Rising property taxes

Home Buying Activities Step 1: Determine Homeownership

Needs

7-7

Home Purchasing Activities Kinds of Real estate

Available • Single-Family Dwelling

• Multi-Unit Dwelling– Duplex (two homes)

– Townhouse (2, 4, or 6 units)

– Apartment– Individual ownership of a system in a building

– “Condominium” ≠ a type of creating structure

– “Condominium” = a legal way of homeownership

– Cooperative Housing– Models belonging to a non-profit company – Shareholders purchase inventory for right to reside in device in building with several

units– Manufactured Homes– Completely or partly constructed in a manufacturer, and then shifted to the real estate

site– Prefabricated = elements factory-built and constructed at the site

7-8

Home Purchasing Activities Kinds of Real estate Available Mobile Homes– Kind of produced home, often <1,000 sq. ft.

– Same primary functions as a normal house

– Safety is discussed

– Tend to devalue in value (like cars)

– Owners must own the area or lease the “pad” on which rv is placed

7-9

• Building a Custom Home:– Does the specialist have required experience?– Does specialist have a great operating connection with:

- Architect?– - Suppliers?– - Electricians?– - Plumbing technicians ?– - Carpenters?– What guarantee do you have about quality?– What are transaction arrangements?– What setbacks will be regarded legitimate?– Is the specialist certified and insured?– Are there any problems about this contractor?– Contract should have a moment routine, price reports,

information of labor, and a transaction schedule

Home Purchasing Activities Kinds of Real estate Available

7-10

Home Buying Activities Determine What You Can Afford

– Consider both cost and quality

– Look at your earnings, your present cost of residing, and how much you have for a down payment

– Have a mortgage loan official prequalify you

– Front-End Ratio- transaction per month for PITI should not surpass 25% to 29% of total income

– Back-end Ratio- transaction per month for PITI plus ALL CONSUMER DEBTS should not surpass 33% to 41% of total income

– Purchase what you can manage NOW - you can always shift up

7-11

Home Buying Activities Step 2: Find and Evaluate a Home• Select a location, location, location

– Be conscious of zoning laws– Assess the college system-if you have kids OR not– Services of real estate agents– Will show homes for your needs, existing your offer,

negotiate the cost, help with obtaining financing, and scenario at the closing

– Commission compensated by seller; involved in price– Seller’s broker, Dual broker, or Buyer’s agent– The Home Inspection– Conduct your perfect house evaluation or use an

inspector– Mortgage organization will need an appraisal

7-12

Home Purchasing Activities Phase 3: Cost the Property

• Determine the Home Price– Cost impacted by prices in the area– Current requirement for housing– Time house has been on the market– Owner’s need to sell– Financing options– Features and situation of the home

• Negotiate the Purchase Price– Counteroffers are common– Earnest cash – Portion of the cost placed as proof excellent faith– Contingency clause– Offer reliant on certain events:– Obtaining financing– Sale of present home

7-13

• The Financial situation of House Buying: The Deposit and The Mortgage

• Step 4: Obtain Financing• Determine down payment amount

• Large (> 20%) down payment makes the process easier

• Mortgage insurance policy plan if < 20% down (PMI)

• Automatic PMI cancellations when value =>22%

• Required by Home entrepreneurs Protection Act

• Feature of a mortgage: LEVERAGE (using other people’s money; magnifies a home’s acquire or loss)

Objective 3Determine Costs Associated with

Purchasing a Home

7-14

• Long-term loan on a particular piece of property (e.g., main home or other real estate)

• Usually 10, 15, 20, 25, or 30 years• Three main phases• Complete program and fulfill with home loan

lender to provide proof qualification• Lender acquires credit file and confirms

application• Mortgage qualifies or denied

Home Buying ActivitiesThe Mortgage

7-15

• Receiving home financing includes• Income• Debts• Credit record (700+ score)• Down transaction amount• Length of the loan• Current home loan rates

• “Points” = prepaid interest as a % of loan amount– Each factor =1% of the borrowed funds amount– Premium compensated to acquire a reduced home loan rate

Home Buying ActivitiesThe Mortgage

7-16

• Loan for which you are eligible will be higher when prices are lower• Calculating the per month major and attention payment:• Exhibit 7-7 = Transaction aspects (page 230)• Example: • 30-year, 7%, $223,000 mortgage• Monthly payment = 223 X $6.65 = $1,482.95• Payment = Principal pay back + interest• PITI = payment + taxation + insurance• Fixed-Rate, Fixed-Payment Mortgage

– Set amount, set transaction, amortized– 5%, 10% or 20% down– 15, 20 or Three decades of set payments

• Government-Guaranteed Financing Programs– Experts Management (VA)– Federal Real estate Power (FHA)

Home Buying ActivitiesThe Mortgage

7-17

• Adjustable Rate Mortgage (ARM)– Flexible-rate or variable-rate mortgage

– Interest quantity differs over the lifestyle of the loan

– Rate cap reduces quantity of modify in rate

– Payment cap reduces quantity of modify in payment

– Can outcome in adverse amortization

– Convertible ARM– Allows conversion to a set rate during a certain period

– Balloon Mortgage– Set per month installments – Large final payment after 3, 5, or 7 years

– Growing-Equity Mortgage (GEM)– Expenses improve to allow loan to get compensated off more quickly

• Interest-Only Mortgage– Reduced expenses for the first few years– Payments go towards attention only

House Purchasing Activities Kinds of Mortgages

7-18

• Shared Appreciation Mortgage (SAM)– Client gets a lower interest rate – Agrees to share valued value of home with the lender– Second Mortgage– Mortgage loan (fixed payments) or HE Credit line to tap – Home = collateral – Interest may be tax deductible– Reverse mortgages– House value transformation mortgage– Provides property owners who are 62+ with tax-free earnings

depending on home equity; great up-front costsMortgage Repayment Strategies

• Refinancing – Consider expenses of re-financing in decision

• Making extra payments– Decreases benefit time & attention paid

House Purchasing Activities Other Funding Options

7-19

• Make arrangements for a walk through – Last-minute products for negotiation

– Closing – Conference such as buyer, supplier, attorneys (if

any) and sometimes lender– Document signing– Last-minute details settled; cost payments– Closing expenses = agreement costs– Real Estate Settlement Procedures Act– Requires buyers be given high ending expenses calculate

before the closing

Home Buying ActivitiesStep 5: Close the Purchase Transaction

7-20

• Title insurance policy plan and check fee• Attorney’s and appraisers fees• Property survey• Pest inspection• Recording fees• Transfer taxes• Credit report• Lender’s resource fee• Escrow consider tax and insurance policy plan reserve• Pre-paid interest • Real residence broker’s commission• Title Insurance

– Title company explains restrictions of property– Title look for to ensure rentals are free of claims– Protects against future problems in title– Deed– Documents that transactions ownership– Warranty activity guarantees the headline is good– Seller is real owner with right to provide you with the property– No outstanding claims against the title– Escrow Account– Money placed with loan company for transaction of taxation and insurance

Home Buying ActivitiesClosing Costs

7-21

Preparing your home– Fix, colour, fresh, decrease mess – When displaying house, “Stage It”:– Turn on lighting – Open curtains – Bake breads or make java for pleasant smell– “Curb appeal”– Lawn and landscaping– Outdoor clutter– Exterior paint

Objective 4Develop a Strategy for Selling a

Home

7-22

Selling Your Home

• Determining the selling price– Evaluation = calculate of the present value– “For Sale by Owner” – Use a lawyer or title company– Time getting for seller– Listing with a Real Estate Agent– Consider agent’s knowing of the community– Various alternatives and marketing efforts– Screens potential buyers

7-23

Cover Up

• Area Quiz

• Concept Analyze 7-1- Rental or Buy?

• Concept Analyze 7-2- Top quality of School for Childless Home Buyers?

• Concept Analyze 7-3- Main Kinds of Money for Down payment? and Type of Home Financing Action?