Purchasing a Home Copyright 2011© Texas Education Agency. All rights reserved 1

Terms to Know Closing Costs – fees that are due at the time the purchase is finalized. Down payment- required amount of cash payment to be made at time of purchase. Earnest Money –Money that the buyer puts down to show they are interested in the property. 2 Copyright 2011© Texas Education Agency. All rights reserved

Terms to Know Interest – Money that the lending company charges the buyer for the loan. Mortgage – a home loan Principal- the original amount of the loan Homeowner’s Insurance – insurance that covers the structure and the contents 3 Copyright 2011 © Texas Education Agency. All rights reserved

Terms to Know Equity –the difference between the market value and the amount of money owed on the mortgage Escrow- money held by a third party until a specified time Amortization- the gradual elimination of the principal on the loan 4 Copyright 2011© Texas Education Agency. All rights reserved

Advantages of Home Ownership Feeling of stability Independence – can change the dwelling to meet their needs Investment value – investing money in real estate 5 Copyright 2011 © Texas Education Agency. All rights reserved

Advantages of Home Ownership Good Credit Record – helps one build their credit rating Tax Advantages – can deduct property taxes and interest on income tax 6 Copyright 2011 © Texas Education Agency. All rights reserved

Advantages of Home Ownership Limited mobility – should be a long term investment – may cost one money if only stay a short time. 7 Copyright 2011© Texas Education Agency. All rights reserved

Disadvantages of Home Ownership Unexpected Expenses – appliances may need to be bought or replaced Time spent on maintenance - responsible for all upkeep 8 Copyright 2011 © Texas Education Agency. All rights reserved

Purchasing a New Home Development Homes – built by the developer and have a limited number of floor plans to choose from. 9 Copyright 2011 © Texas Education Agency. All rights reserved

Purchasing a New Home Spec Homes – built by the builder on speculation. The home is built before the buyer is secured. Buyer can not choose the outside decor and some of the interior items 10 Copyright 2011 © Texas Education Agency. All rights reserved

Purchasing a New Home Stock Home Plans – Purchase a floor plan from a book and have a builder build it for you. 11 Copyright 2011© Texas Education Agency. All rights reserved

Purchasing a New Home Custom-built Home – Architect draws up the plans according to your desires. You own the plans and no one else can use them without your permission. 12 Copyright 2011© Texas Education Agency. All rights reserved

Advantages of a New Home Clean In good condition Modern Appliances More than one bathroom Can choose the interior/exterior material and designs Easier to finance Low maintenance costs 13 Copyright 2011 © Texas Education Agency. All rights reserved

Disadvantages of New Home Possible cost of landscaping – most likely the back yard 14 Copyright 2011 © Texas Education Agency. All rights reserved

Advantages of Older Home More space for the money Greater individual character Often located in a well established neighborhood Landscaping is complete 15 Copyright 2011 © Texas Education Agency. All rights reserved

Disadvantages of Older Home Possible cost of repairs – electrical wiring, plumbing and exterior and interior surfaces deteriorate with age Possible structural problems - cracks, little or no insulation, inefficient heating and cooling 16 Copyright 2011 © Texas Education Agency. All rights reserved

Disadvantages of Older Home May need a larger down payment May need to redecorate May need new landscaping as it has no curb appeal 17 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 1. Contact a Real Estate Agent or begin the search by oneself by using newspapers, internet, television or driving through neighborhoods. 18 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 2. Evaluate the homes one sees according to what you are looking for. Key rooms buyers look at today are the kitchen and master bathroom. 19 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 3. Make an offer by depositing earnest money. This money is held in trust until the deal is finalized and then applied toward the price. If one decides to back out, the earnest money may be refunded. 20 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 4. Obtain financing – must qualify for a loan to cover the cost. The monthly payments should not be more than 28% of the person(s) gross monthly income. Buyers will have to pay for a credit check to be done. Debt payments for the buyer should be no more than 36% of monthly gross income. 21 Copyright 2011 © Texas Education Agency. All rights reserved

Types of Mortgages Conventional – pays a fixed interest rate for the length of the loan (15 to 30 years) Adjustable Rate Mortgage – interest rate changes depending on the current market rate. Every time the rate changes, the monthly payments change. Graduated Payment Mortgage – payments start out low and increase in the later years of the loan. 22 Copyright 2011 © Texas Education Agency. All rights reserved

Home Loans FHA Loan – insured by the Federal Housing Administration. FHA guarantees the lender that the debt will be paid. VA Loan – for people who have served in the armed services. Loans are guaranteed by the department of the Veteran Affairs. No down payment is required. 23 Copyright 2011 © Texas Education Agency. All rights reserved

Home Loans Rural Housing Service – helps low to moderate income families buy homes in smaller communities First Time Buyer Program – Government program that helps people purchase their first home. Features low down payment and easier qualifying 24 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 5. Have the home inspected. –Termites –Radon – naturally occurring gas that causes health problems –Asbestos inspection –Lead testing – especially homes constructed prior to 1970 –General structure such as roof, foundation, plumbing, heating and electrical systems 25 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 6. Obtain homeowners insurance – property insurance that insures the dwelling and contents against fires, windstorms and other hazards. –It also includes a personal liability coverage that protects you in case someone injures themselves on your property. 26 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 7. Down payment- must have money for a down payment – usually 5 to 25% of the purchase price. The standard amount today is 20%. 27 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process 8. Closing the Deal –Origination fee – fee to the lender to process the mortgage –Cost of Survey – to determine the exact boundaries of the property –Cost of appraisal – estimate the value of the property 28 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process –Title Search – investigate the court records to make sure the seller really owns the property –Points – a one time fee charged by the lending company –Attorney fee – to make sure the contract is legal and binding. 29 Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process Other Costs to the Buyer –Moving costs –Utility connections (having them turned on) –Landscaping if not included in the contract with a new home 30 Copyright 2011 © Texas Education Agency. All rights reserved

Congratulations When all paperwork is signed and down payment and closing costs made, the buyer may take possession of the property. Your monthly payments will include payment of principal, interest, property taxes and insurance. 31 Copyright 2011 © Texas Education Agency. All rights reserved