1. CHAPTER 5
Acquiring Housing

2. Objectives
Assess the advantages and disadvantages of renting and buying housing.
Contrast the impact of needs and wants on housing costs.
Identify items to check before signing a lease.
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3. Objectives
Define legal and financial terms related to acquiring housing.
Summarize the home-buying process.

4. Acquiring a Place to Live
The process of acquiring a place to live begins with many decisions, and include
deciding to rent or buy
Some ways to pay for housing costs include
paying the full amount now
paying part now, a down payment, and pay the rest in regular installments

5. Needs, Wants, and Housing Costs
In making housing decisions, know the difference between needs and wants
Needs are basic necessities
Wants are things a person or family desires and may not need

6. Discuss Consider housing needs and wants (dreams)
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Why do dreams need to match the checkbook?

7. Costs Involved in Payment Methods
Interest is the amount of money paid for the use of someone else’s money
Interest is an important financial term to understand
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8. Costs Involved in Payment Methods
Installment buying is the process of paying for housing in a series of payments over a given length of time
With installment buying, you pay a certain amount for the use of the money, or a finance charge
The finance charge is stated as an annual percentage rate (APR) of the amount borrowed

9. A Place to Rent
About one-third of all Americans rent their housing, paying a set amount each month
A security deposit is required along with the first month’s rent
This deposit ensures the owner against any financial loss caused by the renter
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10. A Place to Rent Ask these questions
What is the rent per month? When is the rent due? Is a security deposit required? Will it be returned if there is no damage?
What are the expenses beyond the rent (utilities, storage space, parking, air conditioning, TV/Internet connections, and related expenses)?

11. The Written Lease
Be sure to examine and understand a lease before signing it and getting the keys to the apartment
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12. The Written Lease The lease includes utilities
location
rental amount
security deposit
lease period
appliances, furnishings, services, and amenities
utilities
upkeep, maintenance, and repairs
legal issues
conditions of use
special clauses
signatures
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13. The Written Lease All leases are different
Be sure to understand all the points in the lease before signing, especially restrictions

14. Assigning or Subletting a Lease
If a renter decides to move out early on a signed lease, they have three options including
continue payments until the lease is over
assign the lease
sublet the lease
Talk with the landlord about these options before moving out early

15. Responsibilities and Rights of Renting
Both the renter and the landlord have responsibilities and rights
Two legal consequences of a lease violation include
breach of contract
eviction
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16. Breach of Contract
A breach of contract occurs when either the landlord or renter fails to fulfill the promises of the lease, such as
breach of contract by the renter in failure to pay rent
breach of contract by the landlord in failure to provide water or means of heating the dwelling

17. Eviction
If a renter fails to meet the responsibilities of the lease, the landlord may evict the renter
Eviction is a legal procedure requiring the renter to leave the dwelling before the lease is up

18. Renter’s Insurance
Rental insurance protects a renter against loss of possessions due to
theft
fire
natural disaster
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19. A Place to Buy
About two-thirds of all people in the U.S. own their own houses
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20. A Place to Buy
There are many advantages of owning a home, including a/an
increase in value over time depending on economic conditions
federal tax deduction on mortgage interest paid
The principal is the total amount owed on the mortgage
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21. A Place to Buy
A disadvantage of owning a home is the potential of a foreclosure
Foreclosure is a legal procedure in which a lending firm takes possession of the property
This may happen if the borrower
fails to pay monthly house payments on time

22. Examine Your Finances To avoid foreclosure, people can
buy houses they can afford
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23. Estimating What You Can Afford
A simple way to determine how much a borrower can afford to pay for housing is to multiply the gross income 2½ times
For example, suppose a borrower’s gross income is $60,000, he or she could multiply 2½ × $60,000 = $150,000 (the amount a borrower could afford to pay for a home)
housing-to-income ratio in which monthly housing costs should not exceed 28% of gross monthly income

24. Estimating How Much Money You Can Borrow
Credit history is a record of past payments and a profile of outstanding debts
Part of a person’s credit history is the credit score, which is
a mathematical calculation that evaluates information in a person’s credit history
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25. Estimating How Much Money You Can Borrow
Consumer-reporting companies keep and monitor a person’s credit history
The FTC requires each of the consumer-reporting companies to provide a free copy of a person’s credit report once every 12 months
Lenders use a person’s credit history to help determine whether an individual will pay back the loan

26. Buying a Pre-Owned Home
Advantages of buying a pre-owned home may include the previous owner
leaving some decorations (window treatment)
providing mature plants in landscaping
A disadvantage is that older homes have shortcomings

27. Discuss Landscaping adds to the curb appeal of a house
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What do you observe about the landscaping of the new home (on left) and a pre-owned home?

28. The Home-Buying Process
Steps in the home-buying process include
mortgage selection and preapproval
searching for a house
making an offer
finalizing the financing
obtaining home owner’s insurance
obtaining a home inspection
having a survey, appraisal and title search
closing the sale of a home

29. Mortgage Selection and Preapproval
A mortgage is a pledge of property that a borrower gives to a lender as security for a loan to buy property
The borrower agrees to gradually amortize, or pay back the loan over time
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30. Types of Mortgages
Three types of mortgages for purchasing a home include
conventional mortgages
adjustable-rate mortgages (ARM)
require careful consideration because the interest rate could go up dramatically
government-backed loans

31. Conventional Mortgages
are long-term, fixed-rate loans (15, 20, 30, and sometimes 40 year loans)
require a 5-20% down payment
may require private mortgage insurance (PMI) if the buyer does not have the 20% down payment

32. Government-Backed Loans
FHA-insured mortgages which are insured by the Federal Housing Authority against default
These mortgages may require a smaller down payment than a conventional loan
RD-rural development which is for towns with population under 10,000, 0 down, must be in fair condition
VA-guaranteed mortgages which the Veteran’s Administration provides to persons who served in the military
No down payment is required by the VA

33. Shopping for a Mortgage Lender
Before deciding on a mortgage, check out various lending agencies
Compare at least three lenders for
down payment and PMI requirements
fixed or adjustable interest rates and APR
Closing costs

34. Obtaining Preapproval for a Loan
A preapproval for a loan is desirable for negotiating the purchase of the house
During the preapproval process, the lender verifies
employment , tax records, bank references, and the borrowers credit history
The lender gives the buyer a preapproval letter indicating commitment

35. Using a Real Estate Firm
Real estate firms advertise homes for sale through a multiple listing service
A realtor is a member of the National Association of Realtors
Realtors charge a fee, or commission, usually 6 percent of the selling price of the home
Sellers usually pay this fee
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36. Using a Real Estate Firm
The realtor represents the buyer, and is also known as the “buyer’s agent”
Some realtors are “seller’s agents”
Realtors can help make the home-buying process efficient and accurate
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37. Locating Homes for Sale
Options for locating homes on your own include
Internet shopping—a virtual walk-through is available on some sites
newspapers
word of mouth
neighborhood “For Sale” signs
Locating a home on your own requires a great deal of knowledge

38. Making an Offer—The Sales Contract
After finding a likable, affordable house, make an offer to purchase it
Earnest money is a deposit that goes along with the offer to show the seller the buyer is serious about buying the house
The agreement of sale, another name for the offer to purchase, is the official document filed to purchase

39. Finalizing the Financing
When the agreement of sale is final, finalizing the loan arrangement with a lender is next
The lender locks-in the interest rate and provides a written guarantee
The documents a lender requires to make the final loan decision include
a copy of the signed sales agreement and completed loan application
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40. Finalizing the Financing
Other documents the lender may require include
tax information for the previous 2 years
two or more paycheck stubs
debt information (credit report)
proof of other assets
address and description of property

41. Obtaining Home Owner’s Insurance
Home owner’s insurance protects the home owner against potential hazards

42. Obtaining a Home Inspection
A home inspection is an evaluation of the construction and present condition of the home and
reveals defects that impact home value and sales price
Some states also require termite and mold inspections
The buyer arranges and pays for the home inspection
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43. Obtaining a Home Inspection
A home inspector works for the buyer and may find problems that the buyer may not see
Existing problems can be dealt with upfront with the seller
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44. Having a Survey, Appraisal, and Title Search
Many mortgage lenders require a professional survey of the property to
assure that the property lines are correct and that no problems exist
An appraisal is an expert estimate of the quality and value of the property

45. Title and Deed
An abstract of title is completed by an attorney, to assure
correct ownership
no debts, or liens, on the property
A title is a document that gives proof of property ownership upon closing the sale
A deed is a document that shows the transfer of the title from one person to another

46. Closing the Sale of a Home
A closing is held at the end of the sale
Closing costs are due at the closing and may include
recording fees
attorney’s fee
abstract of title and title insurance
appraisal fee
survey charge
other fees (origination, escrow, and points)