Chapter 5 Owning a Home The Right Place The Right Price Buying Process and Terms Feeling at Home

Selecting A Home: Feeling Like Home Assess your housing requirements What can I afford to spend? Financial experts suggest 28% of your monthly gross for income. What location am I interested in? What type of housing would suit me? How much space do I need? Consider the following factors: Individual/Family Life Cycle Stage in Life Quality of Life requirements (checklist) Income Debt Ratio

What is Available-Right Place How do you find out what is available? Drive or walk through areas you would like to live. “For Sale” signs posted. Newspapers print advertisements for “Homes for Sale”. You can also check for online listings. Real estate agencies and home finding services often have lists of home on the market.

The Home-Buying Process Evaluating Homes Making an Offer Agreeing to Purchase Obtaining Financing Having the Home Inspected Obtaining Homeowner’s Insurance Closing the Deal

The Home-Buying Process Buying a home is a long and complicated process. If you know the basic steps, however, the procedure becomes much easier. The Role of Real Estate Agents Screens prospective buyers and shows the home only to people who are truly interested in buying a home. When listing a house, the owner agrees to pay the agent a fee or commission when the home is sold. An agent can also help negotiate the price with the seller or the seller’s agent.

Deciding What to Look for New Home or Old? What are the advantages and disadvantages of each?

Inspect and Compare Living Space Evaluate the overall layout Compare floor plans. Facilities Garage, appliances, laundry connections Homeowners association, pool, club house, etc. Individual Needs Consider accessibility/universal features Safety and Security. Neighborhood? Neighbors? Are entrances well lighted? Are there covenants and restrictions? Maintenance ordinances

Inspections Part of the home buying process Several may be required by the lender or the state, others are optional General home – certified home inspector checks for structural soundness and ensures plumbing, electrical, and heating systems are in proper working order Termite – the most common required inspection Most contracts require the seller to pay fees for inspections

Right Price A home is a large investment. Buyers will want to choose a home that will increase in value and be easy to resell. Location Design Taxes and Assessments Improvements

Financial Planning: The First Step Income and Budget Buyer’s income determines loan amount 28% Debt ratio Savings Down payment- portion of the purchase price that must be paid in cash. Closing costs Debt and Credit History Current debt Credit history: or their record of paying loans and bills.

Understanding Financing Mortgage Basics A mortgage contract outlines the terms of a loan between the lender and the borrower. The borrower agrees to repay the loan according to the terms of the contract. If the borrower fails to repay, the lender can take possession of the home. Each time a mortgage payment is made, the principal balance- the amount owed to the lender- is reduced. When the last payment has been made the principle of the loan has been repaid and a balance of zero. This gradual elimination of principal is called amortization. Equity, is the difference between the market value of a property-the price it might sell for- and the principle owed on the mortgage.

Process: Offer to Buy It’s essential that you carefully review all the terms and you understand them.

Appraisal Valuation of the property This can determine how much the lender will loan for a mortgage

Types of Mortgages Conventional Mortgage This is the most common type of mortgage. The borrower pays a fixed interest rate for the length of the loan. This interest rate, determined at the time the loan is made, remains the same for the length of the loan. Adjustable Rate Mortgage A loan in which the interest rate changes after a certain length of time, usually every one to five years.

Types of Mortgages Cont’d Graduated Payment Mortgage An option that appeals to many first time buyers is a graduated payment mortgage.

Shopping for a Mortgage Mortgage loans are available from money sources, including banks, savings and loans, credit unions, finance companies, and lenders that specialize in mortgages. Buyers should compare not only the interest rate of mortgage loans but the numbers of points.

Prequalifying for a loan Many lenders are willing to prequalify a buyer for a loan. This means that after obtaining information from the buyer, the lender provides a written estimate of how large a mortgage is likely to be approved. Prequalifying can also save time in the final loan application process.

Loans FHA: A loan that is insured by the federal government against the borrower defaulting on the loan Usually has a lower down payment Can be fixed or adjustable interest rate Any person can apply for this type of a loan VA MUST currently be a member of armed forces or a veteran Does not require a down payment and Congress sets eligibility requirements

Buy vs Rent Ownership Pay utilities Maintenance Costs Tax deductible interest Investment Privacy High front in costs Temporary Pay or not pay utilities Costs embedded in rent No tax benefits Some multi-family Affordable