Fin 221 Chapter 7

What are the advantages associated with renting an apartment?

- easy to move (mobility) - fewer responsibilities for maintenance - minimal financial commitment

What are some disadvantages of home ownership?

- financial commitment - higher living expenses - limited mobility

Real Estate Agent

- show you homes that meet your needs and parameters - presenting your offer - negotiating a settlement price - assisting you in obtaining financing - Representing you at closing - RE agent's commission is usually paid by the SELLER.

Can affect mortgage affordability

- the amount of income you earn - down payment - mortgage rates - the length of the loan

Private Mortgage insurance PMI is required when the down payment is less than

20%

Down Payment Amount

20% ideal

The Homeowner Protection Act requires that a PMI policy be terminated when the equity reaches ___ of the property value at the time the mortgage was executed

22%

Variable rate/ Variable payment mortgage

ARM's have interest rates that can increase or decrease during the life of the loan The borrower bears the risk of future interest increase Typically have rate cap and/or payment cap

Fixed rate/ Fixed Payment mortgages

Amortization Schedule: details amounts paid and balances owed over the life of the loan

When purchasing a home, the buyer (not the seller) can expect to pay closing costs such as?

Appraisal fee Termite inspection Title search fee

Renting advantages

Easy to move (mobility) Fewer maintenance responsibilities Minimal financial commitment

Government Financing

FHA (Federal Housing Authority) - generally for low/middle income VA (veteran's administration) - elgible armed forces veterans, without downpayment

Disadvantages of home ownership

Financial commitment Higher living expenses Limited mobility

Home inspection

Home Purchase agreement may include "subject to inspection" Bank will require an appraisal (not an inspection)

Refinancing your mortgage

If interest drops

Initial offer

In a form of a purchase agreement or contract which is your legal offer to purchase the home If accepted, you have a valid contract If rejected, you have several options; walk away, counter price, negotiate items, closing date, etc.

Negotiating the Price

Initial offer Counteroffer Earnest Money Contingency Clause

Contingency Clause

Initial offer/ purchase agreement may contain a contingency clause; ability to obtain financing, subject to sale of buyer's current home, etc.

How could the tax benefit and risk of a home equity loan best be described?

Interest is tax deductible, but default could mean foreclosure

Determine how much you an afford

Never spend more than 25% of your take home day on housing (mortgage, interest, taxes, and insurance) or Should not cost more than 2 - 2 1/2 times your annual income

Interest only mortgages

No equity, no appreciation

Renting disadvantages

No tax benefits Limitations on remodeling and decorating Restrictions on pets, noise, and other things (sublet)

An adjustable rate mortgage usually has a rate cap and a _____ cap

Payment

Points

Prepaid interest charged by lender 1 point = 1% of the loan amount

Advantages of home ownership

Pride of ownership Financial benefits limited mobility

Factors to consider when buying

Recent selling prices in the area, current demand, how long on the market, owner's need to sell, financing options, features and conditions of the home

Private Mortgage Insurance PMI

Required if DP less than 20%

Costs included in renting

Security Deposit Living expenses (what utilities are covered) Renter's insurance

Determining down payment

Size of the down payment directly affects financing Bigger the down payment, the easier to obtain favorable financing and shorter mortgage

The main factor to consider when refinancing a loan at a lower rate

The cost of refinancing vs. the benefits (savings) of lower monthly payments

(T or F) Two external (market) factors that affect the price of a home are the current demand for housing and the financing options (interest rates) available.

True

Source of $$ for down payment

YOUR savings personal gifts (parents/grand parents)

Location

Zoning laws School Systems

Reverse Mortgage

a loan for living expenses that is repaid when the homeowner sells the home or dies

The Closing

a meeting of the seller, the buyer, and the lender of funds, or representatives of each party (Real Estate Agent), to complete the transaction Documents signed, last minute details are resolved, and funds are exchanged

Evaluating Renting vs. Buying

consider lifestyle preferences types of units

Second Mortgage

home equity loan or line of credit

Lease

legal document that defines the conditions of a rental agreement

Term (Mortgage)

length of the loan 15-year instead of 30-year - increase equity growth and reduce interest

your ____, needs, desires, and attitudes are reflected in your choice of a home

lifestyle

Escrow account

money, usually deposited with the lending institution, for the payment of property taxes and insurance

Earnest Money

part of the offer, buy must present $$ as evidence of good faith. At closing, this money is applied toward the down payment or returned if the deal does not go through

Deed

the document that transfer ownership of the property from one party to the other

Selling your home

- Prepare your home - Determining the selling price - Sale by Owner - Listing with Real Estate Agent

Closing Costs

title search fee title insurance Attorney's fee Property Survey Appraisal fee Recording the deed/ transfer taxes Settlement fee Termite inspection Lender's origination fee Re broker's commission

When it comes to the size of manufactured homes, which one of the following is true?

typically these homes are smaller than 1,000 sq. ft.

Factors to consider in qualifying for a mortgage

your income, other debts, amount of down payment, length of the loan, current mortgage rates

Title

"right" to own/use the property

Counteroffer

Back and Forth and back and forth Sellers Market - seller has upper hand Buyers Market - buyers have the demand (better price)

Qualifying for a mortgage

· 1. Complete mtg application; meet with lender; present proof of employment and Balance Sheet · 2. Lender obtains credit report/verifies your application and finances. With credit score of 620 or more, can obtain financing. The higher the score, the lower the mortgage interest rate. · 3. Either approved or denied based on your financial history and the proposed home.

Size and Quality

"starter home" Handyman's special

Common sources of down payment funds to purchase a home include:

- the sale of investments - assistance from relatives - personal savings

The expenses covered by a condominium monthly fee include

-improvements - insurance for common areas - maintenance and repairs

The benefits of a FHA/VA fixed-rate mortgage included

-low down payment - may be assumable with no prepayment penalties

Home Buying Process

1. Determine home ownership needs 2. Find an evaluate a home to purchase 3. Price the property 4. Obtain Financing 5. Closing and Purchasing Transaction

Title Insurance (2 phases)

1. before closing: Title Co. conducts search to define the boundaries of the property being purchased and conducts a search to determine if it is free of claims (such as unpaid Real estate taxes, contractor's fees) 2. During the term of the mortgage, Title Co. protects the owner and the lender from any unforeseen claims or defects of the title

Steps in the mortgage process

1. complete mortgage application and present evidence of income, etc. 2. lender gets credit report, confirms financial aspects 3. mortgage is approved or denied

Types of Housing Available

1. single family dwellings 2. multiunit dwellings 3. Condos 4. Cooperative housing 5. Manufactured homes 6. Custom built