A Place to Buy: The Buying Process I can determine the advantages & disadvantages of buying a home. I can explain the steps in buying a house. I can analyze the cost of buying a home.

Thinking Ahead Think about your future. In years you will be in the work force. Consider the following: 1. What will your career/occupation be? 2. How much will you earn in a year? (Gross income)

A Place to Buy Provides a sense of freedom Make their own decisions Financial advantages Gain Equity-the money value of a house beyond what is owed on the house. Financial Disadvantages Can be a strain on your finances Foreclosure-a legal proceeding in which a lending firm takes possession of the property. Homeowners have less mobility

Estimating your Finances How much can you afford 2 ½ times your annual gross income

How much can you borrow? Maintain a good credit score Down payment is a partial payment that is made to secure a purchase. The down payment should be at least 5% of the cost of the home, but can vary. (up to 20%) Take out your future outlook and complete the following: Based on your gross income, how much can you afford for a home? How much will you have to have for a down payment?

How much can you borrow cont. What qualifies you for a home loan? Housing to Income Ratio Your total housing costs should total no more than 28 % of your gross monthly income. Mortgage payment, property taxes, insurance, utilities (gas, water, and electricity), repairs, maintenance, and coop or condo fee. Housing costs/gross income = 28% or less Debt to Income Ratio Monthly housing costs plus other long term debts (10 or more months to pay off) should total no more than 36-40% of your monthly gross income. Housing costs + debt = 36% or less Good credit history

Types of Mortgages Conventional Mortgage Two-party contract between a borrower and a lender Long term, fixed rate loan Terms consist of 15, 20, and 30 years Down payment varies from 5-20% Adjustable Rate Mortgage (ARM) Interest rate is adjusted up or down periodically according to the national interest rate index FHA Insured Mortgage Three party contract involving borrower, lender, and Federal Housing Administration. Often a person can get approved for an FHA-insured loan with a smaller down payment VA Guaranteed Mortgage Three party loan involving the borrower (veteran of Armed Forces), lending firm, and the Veterans Administration. Generally cost less than other types of fixed rate mortgages

Other Financial Options Balloon Mortgage Monthly payments based on fixed interest rate, usually short term. Payments may cover interest only with principal due in full at term’s end Land Contract Seller retains original mortgage. Equal monthly payments based on below market interest rate with any unpaid principal due at loan’s end. Rent to buy

Steps in Buying a House 1. Research 1. What do you need in a home? 2. Determine what you can afford 1. Consider your income, credit score, and down payment 3. Prequalified or Preapproved for a Mortgage 4. Find a real estate agent 5. Shop for your home and make an offer 6. Home inspection 7. Work with the bank to choose your loan 8. Home appraisal 9. Paperwork 10. Closing

Ticket out the Door 1. Write down 3 questions you would ask a realtor while touring a home.