Chapter 7

Renting advantages and disadvantages

Advantages: -easy to move -fewer responsibilities for maintenance -minimal financial commitment Disadvantages: -no tax benefits -limitations regarding remodeling -restrictions regarding pets, other activities

Buying advantages and disadvantages

Advantages: -pride of ownership -financial benefits -lifestyle flexibility Disadvantages: -Financial commitment -higher living expenses than renting -limited mobility

Appraisal

An estimate of the current value of the property.

Home prices are affected by:

-recent selling prices in the area current housing demand the length of time the home has been on the market

Consider these factors when evaluating adjustable-rate mortgages:

(1) the frequency of and restrictions on allowed interest rate changes (2) the frequency of and restrictions on monthly payment changes (3) investigate if the loan will be extended due to negative amortization and determine the limit on the negative amortization amount (4) know the index used to set the mortgage interest rate

When choosing a contractor, consider the following:

(A) the contractors experience and reputation (B) their relationship with the architect, material suppliers, electricians, plumbers, carpenters, and other personnel (C) payment arrangements during construction

Security Deposit

(often one months rent) money a renter lets an owner hold in case the rent is not paid, or an apartment is damaged.

Disadvantages of home ownership:

- financial uncertainty - limited mobility - takes time to sell a house - More expensive than renting

Title insurance

- has two phases (1) title company conducts a survey to define the boundaries of the property and conducts a search (2) the title company protects the owner and lender against financial loss resulting from future defects in the tile and from unforeseen property claims not excluded by the policy

Actions to take with property tax

1. Know the appeal deadline 2. Check for mistakes 3. Determine the issues to emphasize 4. Prepare for the hearing

Housing Rental Activities

1. The Search 2. Before Signing a Lease 3. Living in Rental Property 4. At the End of the Lease

The Home-Buying Process

1. determine home ownership needs 2. find and evaluate a property to purchase 3. price the property 4. obtain financing 5. close the purchase transaction

Types of housing available:

1.) SIngle family dwellings 2.) Multi-unit dwellings 3.) Condominiums 4.) Cooperative Housing 5.) Factory built houses 6.) Building a home

Applying for a Mortgage

1.) complete the application and meet with the lender of present evidence of employment, income, ownership of assets, and existing debt amounts. Self-employment applicants should provide detailed evidence of income amounts, along with the proof of savings to show financial stability. 2.) The lender obtains a credit report and verifies your application and financial status. 3.) The mortgage is either approved or denied, with the decision based on your financial history and an evaluation of the home you want to buy.

To help prevent financial difficulties, home equity loans for more than _____ percent of your equity are not allowed in many states

70%

Private mortgage insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency. - usually required if the downpayment is less than 20% - Homeowners Protection Act requires that a PMI policy be terminated when the equity reaches 22% of property value current market value

Most important factor when buying a home:

LOCATION

Lease

a legal document that defines the conditions of the rental agreement between the tenant and the landlord

Mortgage

a long-term loan on a specific piece of property such as a home or other real estate

Closing

a meeting of the seller, the buyer, and the lender of funds, or representatives of each party, to complete the transaction

Adjustable-Rate Mortgages (ARM)

a mortgage with an interest rate that changes based on market conditions. - also referred to as a flexible-rate mortgage or a variable-rate mortgage - usually have a lower interest rate than fixed rate mortgage however, the borrower bears the risk of future interest rate increases -usually have a rate cap and a payment cap

Earnest Money

a portion of the purchase price deposited as evidence of good faith. At the closing of the home purchase, this money is applied toward the down payment.

Conventional 30-Year Mortgage

benefits: -fixed monthly payments for 30 years provide certainty of principal and interest payments drawbacks: -higher initial rates than adjustables.

FHA/VA fixed-rate mortgage (30- and 15-year) Federal Housing Authority / Veterans Administration

benefits: -low down payment requirements and may be assumable with no penalties drawbacks: - may require additional processing time

An agents marketing materials include:

brochures, flyers, for-sale signs, as well as digital activities such as e-mail blasts and social media content. They also contact attorneys, repair companies, and other services

Affects the interest rate

down payment and points charged

Closing costs (settlement costs)

fees and charges paid when a real estate transaction is completed

Lifestyle

how you spend your time and money

factors that affect mortgage affordability:

income, other debts, the down payment amount, loan length, and current mortgage rates Results of this calculation: (A) the monthly mortgage payment you can afford (B) The mortgage amount you can afford (C) The home purchase price you can afford

Refinance a home

means to obtain a new mortgage on your current home at a lower interest rate - before doing this, consider refinancing costs in relation to the savings gained with a lower monthly payment

Escrow Account

money, usually deposited with the lending financial institution, for the payment of property taxes and homeowner's insurance

Major financial benefit of home buying:

mortgage interest and real estate may be deducted on your federal income taxes

Common down payment sources

personal savings, sales investments of other assets, and assistance from relatives

Points

prepaid interest charged by the lender. ----- each discount point is equal to 1 percent of the loan amount and is a premium paid for by obtaining a lower mortgage rate

Ability-to-Repay (ATR) / Qualified Mortgage (QM)

requires lenders to carefully consider a borrower's financial situation before granting a mortgage.

Zoning laws

restrictions on how the property in an area can be used

Important motives of many home buyers:

stability of residence and a personalized living location

Deed

the official document transferring ownership from seller to buyer