Home Buying WHAT DO I NEED TO KNOW?

Key Definitions  Collateral – security given for the payment of the loan  Investment – investment of money to gain profitable returns  Securitized Loan – secure loan that is protected by security, or collateral, to ensure loan repayment  Down Payment – amount of money paid upfront at the time of purchase  Credit – agreement by which borrower receives something of value now & agrees to pay lender at later date  Mortgage – type of loan borrowed from bank or credit union & paid back within certain timeframe

Mortgages  Fixed-rate mortgage – traditional, 15 or 30 yr. term  Rates go up payment stays same, can refinance if rates drop  Adjustable-rate mortgage – fixed for initial term  Rate often below market rate, seems more affordable than in reality  If increases may not be able to afford  Rates unpredictable

Down Payment  Often 20%  Less than 20% often qualifies you as a high-risk borrower  Will have to pay insurance to protect bank’s money  In ex. Rachel contributed $20 of $100 (or 20) up front

Creditworthiness  Considered when applying for mortgage  Foreclosure – stop making payments on mortgage  Lender forces sale of home to recoup borrowed money  Job loss, medical conditions, divorce, snowballing debt  Creditworthiness also affects ability to rent an apartment  Highly important to build and maintain good credit

FICO Score  Snapshot of info in credit report  Mortgage lenders use to assess creditworthiness  Ranges from 300 to 850  Lenders looking for at least 620  Higher the better  Improve by:  Paying bills on time or early  Reduce total debt  Avoid taking on new credit

Where can you get a loan?  Mortgage company  Commercial bank  Credit union  Federal government loan programs  Housing finance agency

Prequalification vs Pre-approval  As Pre-qualification  An estimate of how much of a loan you might qualify for. It is not a firm commitment.  Pre-approval:  A firm commitment from a lender for a specific loan amount. The approval can be valid for as little as 30 days and as much as 120 days or more.

Benefits of Home Ownership?  Can you name some of the benefits of homeownership?

Benefits  Building wealth  Tax Savings  Pride of Ownership  Security  Building good credit

Responsibilities of Ownership  Can you name some of the responsibilities of being a home owner?

Responsibilities of Ownership  On time mortgage payments  Property Taxes  Insurance  Repairs & Maintenance  Purchase own appliances & equipment

Costs of Home Purchase  Loans fees  Credit report fee  Appraisal fee  Earnest money deposit  Down payment  Closing costs

Shopping for a Home  How will you find your home?  Shop Online listing sites  “For Sale” signs  “Open house” events  Word-of-mouth  Real estate agent

Using a Real Estate Agent  Access to the MLS (multiple listings service)  Market knowledge  Guidance through buying process  Handles paperwork  Incentive to succeed (agent only earns commission when you buy)