Personal Finance Garman/Forgue Ninth Edition Chapter 9: Buying Your Home PPT slide program prepared by Amy Forgue and Ray Forgue.

Learning Objectives Decide whether rented or owned housing is better both financially and personally. Explain the up-front and monthly costs of buying a home. Describe the steps in the home-buying process. Copyright ©Houghton Mifflin Company. All rights reserved.

Learning Objectives Distinguish among the conventional and alternative ways of financing a home and list the advantages and disadvantages of each. Identify the important aspects of selling a home. Copyright ©Houghton Mifflin Company. All rights reserved.

Introduction Mortgage Loan: Loan to purchase real estate in which the property itself serves as collateral. Copyright ©Houghton Mifflin Company. All rights reserved.

Rented Housing Rent, deposit, and related expenses Rent: Cost charged for using an apartment or other housing space. Security Deposit: Ensures that you do not move without paying your rent. Copyright ©Houghton Mifflin Company. All rights reserved.

Rented Housing Lease agreement and restrictions Lease: Contract specifying both tenant and landlord legal responsibilities. Periodic Tenancy: Lease agreement can be terminated by either party if they give proper notice in advance. Copyright ©Houghton Mifflin Company. All rights reserved.

Rented Housing Lease agreement and restrictions Tenancy for a Specific Time Subleasing Add items from bulleted list on text p233? ALSO, do you want to add a slide with info from box on p232? Copyright ©Houghton Mifflin Company. All rights reserved.

Owned Housing Single-Family Dwelling: Housing unit that is detached from other units. Copyright ©Houghton Mifflin Company. All rights reserved.

Owned Housing Condominiums and cooperatives Condominium (or Condo) Homeowner’s Association Homeowner’s fee Manufactured housing and mobile homes Copyright ©Houghton Mifflin Company. All rights reserved.

Renting vs. Buying Who pays more: Renters or Owners? What does it cost to buy a home? Consider the tax consequences of buying your home. Copyright ©Houghton Mifflin Company. All rights reserved.

Up-Front Costs Most up-front costs are due at the closing. Closing costs Down Payment: Portion of the purchase price that is not borrowed. Copyright ©Houghton Mifflin Company. All rights reserved.

Up-Front Costs Point (or Interest Point): Fee equal to 1 percent of the total mortgage loan amount. Attorney fees Title search and insurance Miscellaneous fees: Home inspection, appraisal fee, etc. Copyright ©Houghton Mifflin Company. All rights reserved.

Monthly Costs Monthly costs include both principal and interest. Mortgage principal and interest. PITI Copyright ©Houghton Mifflin Company. All rights reserved.

Monthly Costs Loan-to-Value (or LTV) Ratio Mortgage Insurance Private mortgage insurance (or PMI) Federal Housing Administration (FHA) Department of Veterans Affairs (VA) Home warranty insurance Copyright ©Houghton Mifflin Company. All rights reserved.

Misc. Fees Some fees are paid both up-front and then monthly Taxes (T) and Insurance (I) Escrow account Real estate property taxes Homeowner’s insurance Copyright ©Houghton Mifflin Company. All rights reserved.

The Steps of Home Buying Get your finances in order. Prequalify for a mortgage. Front-end ratio Back-end ratio Mortgage broker: Individual or company that acts as an intermediary between borrowers and lenders. Copyright ©Houghton Mifflin Company. All rights reserved.

The Steps of Home Buying Search for a home online and in person. Agree to terms with the seller. Make an offer to buy. Purchase offer (or offer to purchase): Written offer to purchase real estate. Copyright ©Houghton Mifflin Company. All rights reserved.

The Steps of Home Buying Respond to a counteroffer. Negotiate and sign a purchase contract (or sales contract). Copyright ©Houghton Mifflin Company. All rights reserved.

The Steps of Home Buying Apply for a mortgage loan. Good-faith estimate Mortgage lock-in Loan commitment (or loan preapproval) Copyright ©Houghton Mifflin Company. All rights reserved.

The Steps of Home Buying Prepare for the closing. Hire your own inspector. Hire an attorney. Sign your name on closing day. Uniform Settlement Statement: Lists all of the costs and fees to be paid at the closing. Copyright ©Houghton Mifflin Company. All rights reserved.

Financing a Home Items to consider: The amount borrowed The mathematics of mortgage loans Lien Foreclosure Principal Amortization schedule The amount borrowed The interest rate Length and maturity of the loan Copyright ©Houghton Mifflin Company. All rights reserved.

Financing a Home The conventional mortgage loan The adjustable-rate mortgage loan Teaser Rate Payment Caps Negative Amortization Copyright ©Houghton Mifflin Company. All rights reserved.

Financing a Home Alternative mortgage loans Interest-only mortgage Graduated-payment mortgage Lender buy-down mortgage Rollover (renegotiable-rate) mortgage Growing-equity mortgage Assumable mortgage Land contract (contract for deed) Reverse mortgage (or home-equity conversion loan) Copyright ©Houghton Mifflin Company. All rights reserved.

Selling a Home Should you list with a broker or sell a home yourself? Fizbo: For sale by owner (FSBO) Selling carries its own costs Brokers Commission Prepayment Fee Be wary of seller financing! Copyright ©Houghton Mifflin Company. All rights reserved.

The Top 3 Financial Missteps When Buying Housing People slip up in when they do the following: 1. Fail to search for and negotiate for the lowest mortgage interest rate possible. 2. Fail to request that private mortgage insurance be canceled when their loan-to-value ratio drops to 80 percent. Copyright ©Houghton Mifflin Company. All rights reserved.

The Top 3 Financial Missteps When Buying Housing People slip up in when they do the following: 3. Pay off a mortgage early when carrying credit card debt or not saving regularly through a qualified tax- sheltered retirement plan. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Buying Your Home Read your leases and all other real estate contracts before signing. Save the funds for a down payment in a tax-sheltered Roth IRA account. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Buying Your Home Get your finances in order before shopping for a new home by reducing debt, budgeting better, and clearing up anything that keeps you from having a high credit score. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Buying Your Home Buy a home as soon as it fits your budget and lifestyle so you can take advantage of special income tax deductions and the likelihood of substantial price appreciation over time. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Buying Your Home Thoroughly explore mortgage loan sources and options to determine which one best fits your needs. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Buying Your Home If you make a down payment of less than 20 percent on a home, cancel private mortgage insurance as soon as the equity in your home pushes the loan-to-value ratio to 80 percent. Copyright ©Houghton Mifflin Company. All rights reserved.