1. Evaluating Housing Alternatives Section 34.1

2. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Section 34.1 Evaluating Housing Alternatives Section 34.2 The Home Buying Process 34 Chapter Buying a Home

3. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home What You’ll Learn How to compare the advantages and disadvantages of buying a home (p. 730) How to determine the amount of down payment you will need and the approximate amount you can borrow to buy a home (p. 730)

4. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home What You’ll Learn How to describe various types of home ownership (p. 733)

5. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Why It’s Important Being able to evaluate housing alternatives will help you to decide whether to purchase a home.

6. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Legal Terms mortgage (p. 730) equity (p. 730) debt ratio (p. 731) cooperative (p. 735) condominium (p. 735)

7. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Deciding to Buy a Home Section Outline Advantages to Home Buying Disadvantages to Home Buying How Much Can You Afford?

8. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Types of Home Ownership Single- and Multifamily Homes Mobile Homes Cooperatives Condominiums Section Outline

9. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Pre-Learning Question What do you do before deciding to buy a home?

10. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Deciding to Buy a Home Buying a home may be the most important purchase you will ever make.

11. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Deciding to Buy a Home You will need to: weigh the advantages and disadvantages consider how much you can afford determine the type of house will best fit your needs

12. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Deciding to Buy a Home Most people take out a mortgage to help with the costs. A mortgage is a written instrument by which the buyer (the mortgagor) pledges real property to the lender (the mortgagee) as security for a loan.

13. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Advantages to Home Buying There are several advantages to buying a home. One is the ability to do with it as you wish without having to answer to another owner.

14. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Advantages to Home Buying Another advantage is the increase in equity, or the difference between the fair market value and the mortgage, in the property. Equity increases as you pay off the mortgage and as the property increases in value.

15. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Advantages to Home Buying A third advantage is that you can deduct property taxes and interest paid on your mortgage from your income tax return.

16. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Disadvantages to Home Buying There are some disadvantages. the inconvenience and cost of upkeep the inability to move easily and quickly if necessary

17. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home How Much Can You Afford? To determine how much you can afford to pay for a house, you must consider: the amount of down payment the amount you can borrow based on your income and expenses

18. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Down Payment Down-payment requirements range from zero to 30 percent of the purchase price.

19. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home 34.1 Down Payment 0 percent 3 percent 3 to 5 percent 10 to 30 percent Veteran’s Administration (VA) loans (for qualified veterans to buy a house up to $203,000) Mortgages backed by federal agencies, such as Fannie Mae and Freddy Mac FHA loans (loans insured by the Federal Housing Administration) Conventional bank loans Type of LoanDown Payment

20. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Loan Qualifications A lender will judge your ability to repay your loan based on your credit report and your debt ratio, or the amount of your monthly payments compared to your monthly income.

21. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Loan Qualifications Your mortgage payment, including taxes and insurance, should not exceed 28 percent of your monthly gross income.

22. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Loan Qualifications Total monthly debt payments (including your new mortgage, credit cards, car payments, and so on) should not exceed 36 percent of your income.

23. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home The Elements of Buying a House It’s important to consider the following issues when making a home purchase. location down payment mortgage rates and points

24. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home The Elements of Buying a House closing costs monthly payments maintenance costs

25. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Pre-Learning Question What are some different types of homes a person can own?

26. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home You have many choices in selecting a home, depending on how much you can afford and the desired size of the house and its location. Types of Home Ownership

27. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Different types include Types of Home Ownership single-family homes multifamily homes mobile homes cooperativescondominiums

28. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Single-family homes are the most popular type of home. They offer privacy and more overall usable space than other types of housing. Single- and Multifamily Homes

29. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Multifamily dwellings are less expensive to own because of the income from nonowner-occupied units. The owner’s monthly mortgage and tax payments can often come from rental income. Single- and Multifamily Homes

30. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Mobile homes are also known as manufactured homes. They are less expensive to purchase and to keep up. They usually can be sold quickly and easily. Mobile Homes

31. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home A cooperative (co-op) is a form of home ownership in which buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it. Cooperatives

32. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Shareholders have a proprietary lease that gives them the right to the individual units. Cooperatives

33. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home In a condominium (often called a condo), each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas of the condo project. Condominiums

34. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Match the type of home with its description. 1. 1.Multi-family home 2. 2.Cooperative 3. 3.Condominium 4. 4.Mobile home

35. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home a) a)A situation in which each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas.

36. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home b) b)A situation in which buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it.

37. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home c) c)Also known as a manufactured home

38. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home d) d)Less expensive to own that a single-family home because of the income from nonowner-occupied units.

39. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home ANSWER 1. 1.Multi-family home (d) 2. 2.Cooperative (b) 3. 3.Condominium (a) 4. 4.Mobile home (c)

40. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned 1. 1.What are the advantages and disadvantages of buying a home? Section 34.1 Assessment

41. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned Advantages—the ability to do with it as you wish; equity build up; ability to deduct property taxes and interest paid on your mortgage from your income tax return. Section 34.1 Assessment Answer

42. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned Disadvantages—the inconvenience and cost of upkeep and the inability to move easily and quickly. Section 34.1 Assessment Answer

43. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned 2. 2.Is it possible to buy a home with no down payment? Explain your answer. Section 34.1 Assessment

44. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned Yes. Qualified veterans can obtain a VA (Veteran’s Administration) loan to buy a house up to $203,000 with no down payment. Section 34.1 Assessment Answer

45. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned 3. 3.Describe the five types of home ownership. Section 34.1 Assessment

46. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned (1) Single-family—offer the most privacy and usually have more usable space than other types of house. (2) Multi-family—are less expensive to own because of the income from nonowner-occupied units. Section 34.1 Assessment Answer

47. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned (3) Mobile homes—also known as manufactured homes, are less expensive to purchase than ordinary houses and cost less to keep up. They can usually be sold quickly and easily. Section 34.1 Assessment Answer

48. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned (4) Cooperatives—buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it. Section 34.1 Assessment Answer

49. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Reviewing What You Learned (5) Condominiums—each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas of the condo project. Section 34.1 Assessment Answer

50. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Section 34.1 Assessment Critical Thinking Activity Lender Criteria If you were planning to borrow money to buy a home, why would your employment history be important to a lender?

51. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Section 34.1 Assessment Critical Thinking Activity Answer Lender Criteria Answers will vary, but should include that a lender will want to judge your ability to repay your loan based on different criteria such as your employment history, credit report, and your debt ratio.

52. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Section 34.1 Assessment Legal Skills in Action Calculating the Down Payment Using the following scenarios, determine the down payment required on a house that costs $203,000. (Assume all other costs are already included.)

53. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Section 34.1 Assessment Legal Skills in Action Calculating the Down Payment VA loan to a qualified veteran Fannie Mae loan: 3 percent FHA loan: 4.5 percent Conventional loan: 15 percent

54. Understanding Business and Personal Law Evaluating Housing Alternatives Section 34.1 Buying a Home Section 34.1 Assessment Legal Skills in Action Answer Calculating the Down Payment VA loan—no down payment 3 percent loan—$203,000 x.03 = $6,090 4.5 percent loan—$203,000 x.045 = $9,135 15 percent loan—$203,000 x.15 = $30,450

55. Evaluating Housing Alternatives End of Section 34.1