How to Buy a How to Buy a HomeHome

Average cost of a home is $150,000 and Average cost of a home is $150,000 and higher.higher.

Mortgage: Mortgage: loan to buy real estate (house or land)loan to buy real estate (house or land)

The property serves as collateral for the land, The property serves as collateral for the land, if you do not repay the loan it becomes the if you do not repay the loan it becomes the property of the lender (bank)property of the lender (bank)

Mortgage PaymentMortgage Payment

Two parts PRINCIPAL and INTERESTTwo parts PRINCIPAL and INTEREST

Principal is the amount you borrow.Principal is the amount you borrow.

Down payment is a price you pay Down payment is a price you pay upfront usually 20% of the loan.upfront usually 20% of the loan.

ExamplExamplee

If the cost of the house is $100,000 and If the cost of the house is $100,000 and you need a 20% down paymentyou need a 20% down payment

How much is your down payment?How much is your down payment? $20,000!$20,000!

So your principal is………. So your principal is………. (the amount left after the down payment)(the amount left after the down payment) $80,000$80,000

Costs to ConsiderCosts to Consider Interest: Interest:

when you borrow money from a lender you will when you borrow money from a lender you will pay interest on the principal balance.pay interest on the principal balance.

Points: Points: Lenders charge a fee on getting a loan from Lenders charge a fee on getting a loan from

them.them.

Property Taxes: Property Taxes: Local government charges property taxes on the Local government charges property taxes on the

value of your property.value of your property.

Costs to Consider contd’Costs to Consider contd’ Closing Cost: Closing Cost:

At the closing you will need to pay for additional At the closing you will need to pay for additional services the lender had to do to get you the loanservices the lender had to do to get you the loan Example: Example:

An inspector goes to the house to verify An inspector goes to the house to verify everything is up to code. THAT COST everything is up to code. THAT COST MONEY!MONEY!

Homeowner’s Insurance: Homeowner’s Insurance: You must purchase a homeowners insurance You must purchase a homeowners insurance

policy to protect your house against fire, theft policy to protect your house against fire, theft and other hazards.and other hazards.

Types of Types of MortgagesMortgages

Two Types: Two Types: Fixed-Rate MortgageFixed-Rate Mortgage and and Adjustable-Rate Adjustable-Rate

MortgageMortgage..

Fixed-Rate: Fixed-Rate: Charges the same amount of interest for the entire Charges the same amount of interest for the entire

term of the loan.term of the loan.

Adjustable-Rate Mortgage: Adjustable-Rate Mortgage: also known as ARM.also known as ARM.

Interest rates go up and down as the economy rises and Interest rates go up and down as the economy rises and falls.falls.

A home loan can be anywhere A home loan can be anywhere from 30-40 years.from 30-40 years.

Home buying processHome buying process

Know what you can afford.Know what you can afford. Tip: You can afford a home that costs up Tip: You can afford a home that costs up

to 2.5 times your annual gross income.to 2.5 times your annual gross income. Example: Example:

If you earn $50,000 and you have NO debt. How If you earn $50,000 and you have NO debt. How much can you afford?much can you afford?

$125,000 ($50,000 x 2.5= $125,000)$125,000 ($50,000 x 2.5= $125,000)

Make a list of things that you want in Make a list of things that you want in a house: number of bedrooms, a house: number of bedrooms, bathrooms, basement, yard.bathrooms, basement, yard.

Home buying process contd.

•Find a real estate agent to help you find a home.

•Find a house and go through walkthroughs

•Look at walls, carpeting, if there is an odor.

•Look for watermarks on the ceiling or musty odors. •You don’t want water damage.

•Hire a professional inspector

•Both parties will sign paperwork.

•Make you need to provide an offer, negotiate.

Information to provide

•Personal information

•SSN (credit check)

•Proof of employment with pay stubs

•Taxes

•3 months of bank statements

•Amount of debt

•Verification of down payment

Is your head spinning? Too much information?

All in All: •Make sure to save 20% for a down payment

•Establish a good credit history

•Maintain a steady job

•Houses appreciate (they go up in value)!

Terms to Know•Appreciate: To increase in value.

•Earnest Money: A payment made to the seller to show you are serious about wanting to buy their house

•Appraisal: Opinion as to the fair market value of property

•Mortgage: A loan enabling a person to buy property or a home

•Settlement/Closing Costs: Charges involved in finalizing a home purchase