Chapter 7, Section 3 Home Buying Process Personal Finance Chapter 7, Section 3 Home Buying Process

Objective Describe the home buying process

Equity The value of the home less the amount still owed on the money borrowed to purchase it

Step 1: Determine Your Home Ownership Needs Types of housing: Single-Family Multi-unit Condos Cooperative Housing: Non-profit holding Manufactured Homes

How much can you afford? Price and down payment Size and Quality

Zoning Laws Regulations that limit how property in a given area can be used

Step 2: Find and Evaluate a Property to Purchase Selecting a location Hiring Real estate Agent: Help negotiate, arrange financing, recommend lawyers, insurance, inspectors, etc… Agents are technically free for the buyer Home Inspection Process

Step 3: Price The Property How long on the market? What similar homes sold for in the neighborhood? Housing market? Current owners need to sell in a hurry? Condition of home meet your needs? Negotiating the Price

Earnest Money A portion of the purchase price of a home paid by the buyer to the seller to show that the buyer’s offer is serious

Step 4: Obtain Financing Escrow Account: an account in which money is held until it is delivered to the designated party Private Mortgage Insurance: a special policy that protects the lender in case the buyer can’t make payments, or can’t make them on time PMI: Less than 20% down

Mortgages/Points Mortgage: Long term loan extended to someone to buy property 15, 20, 30, even 60 years Interest Rates affect how much you can afford Points: extra charges that must be paid in order to lower your interest rate Each point is 1% of the loan

Amortization The process of reducing the balance of a loan, such as a mortgage, every time a payment is made

Types of Mortgages Fixed Rate/Conventional: Fixed interest rate and fixed schedule of payments Adjustable/Variable: Interest increases or decreases depending on the market FHA: Federal Housing Authority Loan- For low to moderate incomes & first time homebuyers FHA pays your loan if you default

Defaults Inability to make payments on a loan

Home Equity Loan A loan based on the difference between the current market value of a home & the amount still owed on the mortgage

Refinance To take out a new mortgage at a lower interest rate than your previous mortgage

Step 5: Close The Transaction Closing: Meeting of buyer, seller, lender, and lawyers to complete the real estate transaction Closing Costs: Fees & charges for which a seller and buyer are responsible when a real estate transaction is completed Title Insurance: Protects a home buyer in the event that problems with the title are found in the future Deed: Official document transferring ownership from a seller to the buyer

Appraisal An estimate of the current value of a property

Assessment Exercise Individually, complete questions #1-4 on p.229