Chapter 9 The housing decision: Factors and Finances

deed

transfers ownership of property from one party to another

Repairing your home

repair, repaint, clea -clear the garage -keep lawn cut -when showing home, open drapes and turn on lights -bake bread or make coffee for a welcoming smell

zoning laws

restrictions on how property in an area can be used

Legal details of a lease

-Desc. and address of a property -name and address of owner/landlord -name of tenant -effective date and length of the lease -amount of security deposit -amount and due date of rent -Location where rent is due -date and amount for late rent payments -lists for utilities and appliances -restrictions on certain activities -right to sublet the rental unit -charges for damages or moving out later/earlier -conditions where landlord may enter the unit

4. Obtain Financing

-Determine down payment -rates and condition of mortgages -apply for mortgages and eval. types

Drawbacks of home ownership

-Financial uncertainty -obtaining down payment -mortgage financing -house value could drop -limited mobility -can take time to sell home -Higher living costs -home improvements -rising real estate taxes

3. Living in Rental Property

-Keep all facilities in good condition -contact owner for repairs -respect other residents -Obtain renter's insurance

Single Parent

-Rental housing for child environment and security -low maintenance for living

Couple, Children not at home

-Renting for convenience and changing needs -minimal maintenance and lifestyle needs

2. Interior Design

-Size and arrangement of rooms -amount of storage space -door sizes (moving furniture) -layout of kitchen -kitchen appliances -ventilation -adequate laundry area -location of bedrooms -accessibility to attic -adequate electrical outlets

determining the selling price

-appraiser estimates current value -real estate agent markets your home

5. Close the purchase transaction

-arrange for a closing date -obtain funds and documents for closing -request clarification of unclear aspects

selecting a location

-be aware of zoning laws -assess school system

4. At the end of the lease

-clean apartment as it was before -tell landlord where to send security deposit -require security deposit deductions to be documented

Step 3: Price the property Determining the home price

-consider recent selling prices in the area, current demand, length of time on market, need to sell, financing options, features

3. Price the property

-determine apporpriate market price -negotiate an agreement price

Adjustable-rate mortgages

-during life of loan, interest rate varies with prime rate, but has rate cap -pay cap may limit payment but extend loan

Advantages of renting

-ease of moving -fewer maintenance and repair duties -lower initial costs

Conducting a home inspection 1. interior construction

-electrical condition -plumbing condition -water pressure and heat -type and condition of heating unit -quality walls -cracks or ceiling problems -ease of operations for windows -condition of floor covering -condition of basement -stairways condition

Home Buying Process 1. Determine Home ownership needs

-eval. owning place of residence -assess types of housing -calculate affordability

Fixed-rate, fixed-payment mortgages: Conventional

-fixed rate, fixed payment home loan -equal payments over 10, 15, 20, 25, or 30 years -loan is amortized, balance owed is reduced with each payment

Qualifying and applying for a mortgage

-includes income, debts, credit history, down payment amount, length of load, and current mortgage rates -prequalification -finding a property including appraisal -Fee payment and commitment

Government financing problems

-loans insured by VA -Loans insured by federal Federal Housing Authority -Lower down payment and lower interest

Main elements of buying a home

-location -down payment -mortgage application -points -closing costs -monthly payment for principal, interest, taxes, and insurance -maintenance costs

4. Exterior Construction

-material quality and condition of building - construction and condition of foundation -condition of siding -condition/quality of windows -condition/quality of roof and gutters -type and condition of chimney

3. Exterior facilities

-neighborhood appearance -conditions of streets and sidewalks -locations of street lights and fire hydrants -quality of landscaping -condition of driveway -patio or porch condition -drainage system

Disadvantages of renting

-no tax benefits -limits to remodeling -pet and decor limits -costs like security deposit, utilities, and renter's insurance

Benefits of home ownership

-pride in ownership -stability of location -financial benefits -deduct prop. taxes and mortgage int. -potential increase in home value -building equity in your home -Lifestyle flexibility -express individuality

Reverse mortgage

-provides elderly with tax-free income based on home equity in form of loan that is paid back with interest when home is sold or homeowner dies -known as home equity conversion mortgages -refinance if interest rate drops below 1%

Single young

-rental housing has limited maintenance and often mobility -purchasing a home has financial and tax benefits

Couple, Young Children

-renting for facilities for child -purchase a home to meet financial needs

Retired Person

-renting for financial, social, and physical needs -housing with minimal work and provides services

young couple, no children

-renting offers convenience and flexibility -housing for financial benefits and building long-term financial security

2. Find and evaluate a property to purchase

-select a location -consider real estate agent -home inspection

1. The search

-select area and cost -compare cost and resources -talk to current and past residents

assess types of housing available

-single family dwelling -multi unit dwelling -duplex, town house -condominium -own individual unit -legal form of home ownership -cooperative housing -non-profit: member own shares and rent a unit in a building with multi. units -manufactured homes -fully or partially made in a factory and then moved to site -mass production keeps costs down -mobile home -manufactured home less than 1000 sq. ft. -offers similar features as house -safety is debated and they depriciate

Using real estate agent

-they present your offer, negotiate price, assist in obtaining financing, and represent you in closing

Step 5: Close the purchase transaction -Documents signed, meeting buyer, seller, and lender -Closing costs include

-title insurance and title search fee -attourney's and appraisers fees -property survey -deed recording fees -credit report escrow account for tax and insurance reserve -pre-paid interest

2. Before signing a lease

-verify starting dates, costs, and facilities -talk to lawyer about unclear info -note the condition of the apartment with owner's sig. -2 names on lease means both are fully liable

earnest money

a portion of the price of a home that the buyer deposits as good faith to indicate a serious purchase offer

closing costs

fees when transaction is completed

conventional mortgage

fixed-rate payment home loan with equal payments over 10-30 years

condominium

individual owned housing unit in a building of units

title insurance

insurance for during mortgage term, protects owner and lender against financial loss

buy-down

interest rate subsidy from a home builder or a real estate dev. purchased by the buyer that reduces a buyer's mortgage payments for first few years

Other financing methods Buy-downs

interest rate subsidy from home builder or a real estate developer that reduces mortgage payments for the first few years

Comparisons of 15 and 30 fixed mortgages

loan amt. 100,000 int. rate 6% 30-$216,000 15-$151,740

if for sale by owner

use lawyer or title company to help with contract and closing

interest-only mortgage

-allows homebuyer to have lower payments for first few years of a loan -none of the mortgage payment goes toward the loan principal amount -higher payments occur later in loan -can be dangerous if value of property declines

LO 9-5

Developing a strategy for selling a home

Second Mortgage

Home is collateral, and interest may be tax deductable; home equity loan

mortgage

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

Step 4: Obtain financing Determine amount of down payment

private mortgage insurance is required if down payment is less than 20%

amortization

reduction of a loan balance over payments made overtime

building a home

-contractor experience? -Contractor relationship with other workers? -What assurance you have with quality of materials? -payment arrangements? -what delays deemed legitimate? -is contractor licensed and insured? -is contractor willing to provide info about satisfied customers? -any complaints about the contractor? -written contract should have schedule, cost estimates, description of work, and a payment schedule

Negotiating the purchase price

-counteroffers are common -earnest money -contingency clauses -buyer must be able to obtain financing -sale contingent on the sale of the buyer's current home

LO 9-2

Analyze the costs and benefits associated with renting.

LO 9-4

Calculate costs associated with buying a home

Step 2

Find and evaluate a property to purchase

lease

legal document that defines conditions of a rental agreement

LO 9-3 Implement the home-buying process

Step 1: determine home ownership needs

escrow account

account for housing payments