Housing Alternatives

Types of Housing Single Family Home – most popular in the U.S. Own the lot Lawn – outdoor living space More privacy Can rent it out Multifamily Home –2+ dwellings in one building Apartments, townhomes, duplexes Saves on land and construction More efficient Provides for more people on less land

Types of Housing Multifamily Housing Condominium (condo) – each unit in building is individually owned (or rented) Common grounds are owned jointly by owners HOA fees and set rules Some can be rented out, some cannot Apartment Buildings – specifically for rentals Available in all sizes and costs Most in apartment complexes Desirable characteristics – space, location, parking, amenities

Types of Housing Townhouses: individual units with 1-2 floors, often sharing a wall(s) with other units Limited outdoor space Some are available for rent or rented out by owner Duplexes: a building with two living units, usually joined together one on top of the other Share outdoor living space, parking Landlord may live in other side if rented Good for larger families Some buildings have 3 units – called triplexes

Types of Housing Manufactured Homes: modular and mobile homes Homes are built in factories and towed to land in multiple pieces, then utilities are connected Come with furniture and appliances Usually the land it sits on is rented through a manufactured home community – if not, find land to buy, then buy the home Much more affordable Most come with a warranty Some homes can be rented out

Renting a Home More than 1/3 of all Americans now rent Easier to create a budget because you don’t need an emergency fund for repairs Easier to move if jobs change No responsibilities of home ownership Can invest money in other ways Living on your own without having to buy a house “Throwing your money away” Cannot customize your home

Renting a Home Finding a roommate Finding an apartment How will expenses be split How will responsibilities be divided How will problems be solved How will you share the space Finding an apartment Newspapers Online Real estate agents Postings Application process for approval Criminal history, credit check, references, paystub

Renting a Home Cost of renting Legal issues for renters Security deposit Monthly pay Utilities may or may not be included Renters insurance Legal issues for renters Rental agreement – month to month Lease Landlord Tenant

The Fair Housing Act Discrimination in housing is against the law No one can discriminate in the following ways: Refuse to negotiate Make housing unavailable to rent or sell Set different terms Provide different services Falsely deny housing is available for inspections Intimidate to sell or rent Deny access to amenities Provides similar protection for mortgage applications

Help for Those in Need Housing subsidiaries: grants of money to low income households Government pays part of the family’s rent Must be approved based on income and family needs Government programs available to the elderly too

BUYING A HOME - ADVANTAGES Privacy, freedom Building equity – the value of the home minus what you still owe on it Single family homes appreciate the fastest Homes should appreciate about 5% per year Location, upgrades, renters in the area, space, condition Economic status must be strong for optimal value

Buying a Home - ADVANTAGES Tax advantage Interest you pay on your loan is deductible Property taxes are also deductible Most profit made on selling your home is tax free Achieving the “American Dream”

BUYING A HOME - DISADVANTAGES Costs and responsibilities – upkeep, repairs, upgrades, taxes The down payment Most lenders require at least 10-20% FHA Approved loans Must pay PMI until 20% of home is paid off

Obtaining Financing Pay in cash Mortgage: a long-term home loan Collateral: the home you buy is the asset served as a security deposit on your secured loan How many people are on the mortgage? Short sale: the value of the home is less than what you still owe the bank Foreclosure: legal process the lender can use to take possession of the house to resell it if you do not pay your mortgage

Obtaining Financing Contact a few lenders – banks, credit unions, mortgage companies Preapproval – lender completes paperwork to commit in writing to lending you money Indicates how much you are approved for Indicates your interest rate (estimated) Based on down payment, savings, income and credit score Many real estate companies only show houses with preapproval paperwork

Obtaining Financing Mortgage rates Compare rates of different lenders Fractions of a % can make a huge difference Factors to influence your monthly payments Price of the home Down payment Interest rate Length of loan Most loans are amortized – most of the monthly pay goes towards principal, rest interest 10-30 years amortization period

Obtaining Financing Paying points Government financing Some lenders will negotiate a lower interest in exchange of paying points (extra fee) 1 point = 1 percent of loan amount EX. $200,000 loan at 7.5% with no points or 7% with 1 point ($2,000 fee) Does the fee save you money over time given the lower interest? Government financing FHA financing VA

Types of Mortgages Fixed rate mortgage – interest rate does not change Rate will change if you refinance or sell home Least risk, best choice Adjustable rate mortgage (ARM) – interest may increase and/or decrease during the life of loan Lender can change rate based on economic conditions Get in writing how often and how much the rates and payments are allowed to change Beginning is the lowest rate Most have a rate cap Some lenders offer convertible ARMs Better if you know you will be moving within 5-7 years

Types of Mortgages Balloon mortgages – medium term loans Low payments Not fully amortized (no set payment schedule) At end of term (5-10 years) you pay the rest in full If you do not have cash, you refinance the end balance Subprime loans – high-interest loan made to high risk buyers Subprime qualifiers – less than 600 credit score In 2006, 20% of mortgages were subprime – in 2007 many found they could not afford their mortgages and could not sell their home

Working with an Agent Commission – 6% of selling price; 3% to listing agent, 3% to your agent Agents are certified and trained Try to get referrals; if not, research a few before choosing one Choose someone who is expert in the location you wish to buy in

Working with an Agent Communicate all of your wants and needs Make an offer Your agent presents your offer to seller Seller will accept, deny or counter offer You accept, deny or counter offer Sometimes no agreement is made and you walk away You many find yourself in a bidding war with other buyers Should only provide you with facts/options – no advice!!

Working with an Agent The purchase agreement The escrow account Outlines conditions met to close the deal Such as: buyer’s ability to get the loan, inspection, repairs that must be done, closing date The escrow account Money and legal documents collected by real estate agent and held by a third party for safekeeping until deal is closed Usually 1-2% of purchase price Used to pay taxes, HOI Good faith deposit $1000, second deposit $10,000 – applied to closing

Working with an Agent The walk through inspection Inspect the repairs in the purchase agreement have been completed Inspect any contingencies have been fulfilled Closing the Transaction Finalizing the sale of property by transferring the title Deposit, purchase agreement must all be in escrow Title search to ensure there are no financial claims against the property Title/deed is formed – the document that transfers ownership Pay lawyer fees for all the above You have “closed” when all conditions have been met, down payment is given and papers are signed