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