Chapter 9 The housing decision: Factors and Finances

deed

transfers ownership of property from one party to another

if for sale by owner

use lawyer or title company to help with contract and closing

Comparisons of 15 and 30 fixed mortgages

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

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

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

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

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

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

Using real estate agent

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

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

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

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

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

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

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

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

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

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

earnest money

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

escrow account

account for housing payments

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