Chapter 5

Owning a HomeThe Right Place

The Right PriceBuying Process and TermsFeeling 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.

LoansFHA: 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