1. Objective 2.03 Analyze financial and legal aspects of home ownership

2. So you want to buy a house… mortgage Most people need to borrow money called a mortgage Mortgages are contracts outlining terms of a loan between lenders and borrowers L Loans are repaid monthly over a term of 15-30 years.

3. Fixed Rate Mortgages (interest rate and monthly payment are constant) 1.Conventional 2.FHA-insured: ( 2.FHA-insured: (Federal Housing Administration) guarantees mortgages made to those with low- medium credit 3.VA loan: 3.VA loan: loan guaranteed by the Veterans Administration.

4. Estimating What You Can Afford two-and-one-half times gross income Multiply two-and-one-half times your annual gross income (income before deductions) – Gross income X 2.5 = price of house you can afford down payment Buyers must also have a down payment of at least 5%. This is a part of the purchase price that must be paid in cash!

5. Down Payment Calculation Example: $72,000 with 10% down payment – Cost of house = $72,000.00 – 10% down payment = $7200 – Amount to finance = $64,800 Example: $72,000 with 20% down payment – Cost of house = $72,000.00 – 20% down payment = $14,400.00 – Amount to finance = $57,600.00 Larger the down payment, the smaller the mortgage!

6. Qualifying for a Loan 1.Housing to Income Ratio 1.Housing to Income Ratio: ALL of your housing costs should equal no more than 28% of your gross monthly income – Includes mortgage payment, property taxes, insurance, utilities, repairs, maintenance 2.Debt to Income Ratio: 2.Debt to Income Ratio: Monthly housing costs plus other long-term debts should total no more than 36% of your gross monthly income – Long-term debts are those that take longer than 10 months to repay 3.BOTH 3.BOTH ratios must be met to qualify for a loan!

7. Stop here and complete “Calculating Housing Costs”

8. The Purchasing Process 1.Agreement of sale or purchase agreement: – States all the conditions of the sale 2.Earnest Money: – Money – Money potential buyer pays to show they are serious – Money is held and applied to the cost of the house or refunded if the buyer cannot get a loan.

9. 3.Abstract of title or title search: – Makes sure the seller is the true owner of the house – Makes sure there are no debts on the house 4.Survey: – Makes sure property lines are accurate.

10. 5.Inspections: – General home inspection – General home inspection (roof, heating and cooling systems, structural problems, safety issues) – Termite inspection 6.Secure a mortgage – Today most buyers become. pre-approved.

11. 7.Closing: ownership of property – Buyer takes ownership of property – Involves seller, buyer, lawyers, and real estate agents – Closing costs – Closing costs are paid – Origination fees – Origination fees: paid to lender for processing loan – Appraisal fee: – Appraisal fee: paid for determining the value of the property – Other fees escrow – Other fees for lawyers, real estate agents, etc. Some of the money will be held in escrow for property taxes and insurance.

12. Advantages of Owning a Home Sense of freedom and independence Financial advantages: – Helps establish a good credit record – Interest and property taxes are deductible – Houses usually increase in value – this is called equity.

13. Equity Example – Mary owns a house. She currently owes $90,000 on her mortgage. She has decided to sell her house and buy a new one – Mary’s real estate agent sells Mary’s house for $140,000 (market value) – Mary paid off her mortgage of $90,000 – How much money did Mary make when she sold her house? equity. – Mary made $50,000. This is called equity. – Mary used her equity as a down payment on a new home.

14. Disadvantages of Owning a Home Strain on finances- property taxes, insurance, and maintenance Uses up lots of your free time Foreclosure if you get behind on monthly payments Limited mobility.

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