FINN Chapter 10 (Final)

selecting a home

- first determine the area where you want to live -Next, evaluate the homes for sale in your target area to determine the typical price range and features. -Once you decide on a realistic price range, identify a specific home that you desire. - You can compare the cost of buying that home to the cost of renting. This way, you can weigh the extra costs against the benefits of home ownership.

Allocation of the mortgage payment

Each monthly mortgage payment represents a partial equity payment that pays a portion of the principal of the loan and an interest payment.

How much should your mortgage cost?

Financial planners suggest that a home price should be no more than 2.5 times the total gross annual household income monthly mortgage payments, including the mortgage, property taxes, and insurance, should not exceed 28% of gross monthly income They also suggest that all the household's monthly debt payments (including the mortgage) should be no more than about 40% of the total monthly gross income

How much can you afford?

For most individuals, the purchase of a home may be your most important personal finance decision, because it can have a major impact on your net worth over time.

Special Types of Mortgages

In some cases, prospective buyers do NOT qualify for a traditional fixed-rate mortgage or an adjustable-rate mortgage. Some special types of mortgages are available that can make a home more affordable (like ones listed below)

www.mortgageloan.com and insert the search term "refinance"

Information about refinancing loans.

The consumer interest rates section under Rates+BondsRates+Bonds at www.bloomberg.com

Interest rates for mortgages of various maturities.

Points

Lenders sometimes charge a fee commonly referred to as discount points or points to reduce the interest rate on a loan. The more points you pay, the lower the interest rate on the loan. Points are stated as a percentage of the loan amount. If you are charged one point when you obtain a mortgage in the amount of $150,000, a fee of $1,500 (computed as 1%×$150,000) is charged at the time the loan is granted. Points may be tax-deductible. Lenders do not always charge points, so you should shop around to see if you can find a lender who will offer you a similar interest rate without charging points.

GOALS FOR MORTGAGE FINANCING

Limit the amount of mortgage financing to a level that is affordable. Select a short loan maturity if possible, assuming that the payments are affordable. Select the type of mortgage loan (fixed- or adjustable-rate) that is more likely result in lower interest expenses.

Government-backed loans

Loans obtained with the help of government agencies such as FHA (Federal Housing Administration), Department of Veterans Affairs (VA), or other programs. a traditional lender extends the loan, but the government insures it in the event of default. Government-backed mortgages may allow lower down payments and may even specify lower interest rates than conventional mortgages The FHA loans enable low- or middle-income individuals to obtain mortgage financing. The VA loans are extended to military veterans. Both FHA and VA loans are assumable by the buyer in the event that the homeowner who initially qualified for the mortgage loan decides to sell the home.

Recently Sold section of www.zillow.com

Sales prices of homes on a street in a city that you specify over a recent period. It can also provide a list of homes in the city you specify that sold within a certain price range.

Inspection Fee

The borrower who is purchasing the home hires a licensed inspector to assess the current condition of the home.

Valuation of a Home

Use your criteria to compare advantages and disadvantages of 4 homes May found housing that meets your criteria but it over priced and should NOT be considered

Loan Application Fee

When applying for a mortgage loan, you may be charged an application fee by the lender. The fee typically ranges from $100 to $500.

^^Those are all bad reasons because....

if they get a larger mortgage, that means more debt, and that they will need to make larger monthly mortgage payments obtaining an extra job just to afford a more expensive home might reduce the enjoyment of that home. Third, home values might rise over time, but they could also decline over time, and if the values drop, the more expensive homes will likely suffer a larger decline in value.

Appraisal Fee

includes attorney fee and inspection fees. An appraisal is used to estimate the market value of the home and thus protects the financial institution's interests. The appraisal fee commonly ranges between $300 and $500.

Caps on Adjustable Rate Mortgages

The adjustable-rate mortgage contract also typically specifies caps, or a maximum and minimum fluctuation in the interest rate. For example, an ARM may have a cap of 2% per year, which prevents the mortgage rate from being adjusted upward by more than two percentage points from its existing level in each year. This cap is useful because it limits the potential increase in the mortgage payments that may result from an increase in interest rates. In addition to a cap on the annual increase in the mortgage rate, there is usually a lifetime cap, which represents the maximum amount of the increase in the mortgage rate over the life of the mortgage. A lifetime cap of 5% is commonly used. Thus, if an ARM has an initial mortgage rate of 7% and a 5% cap, the maximum mortgage rate over the life of the mortgage would be 12%.

Other online services

allow sellers to list their home in a database, without providing other real estate-related services. The contract is completed by the buyer and seller without the help of a real estate agent. The advantage of this type of service is that it charges lower commissions than a traditional full-service real estate company. Some of these online services are actually subsidiaries of the traditional full-service real estate companies.

You will need to decide whether to obtain a fixed-rate or adjustable-rate mortgage and what the maturity of the mortgage should be.

Traditionally, mortgages had a fixed interest rate and a maturity of 30 years, today mortgages are available with maturities ranging from 15 to 40 years. Mortgage loan lenders determine how much money they will lend you based on your financial situation and credit history. Various Web sites can estimate the maximum value of a home you can afford based on your financial situation (such as your income and your net worth).

Other ARMs offer the following alternatives:

-An interest rate that is fixed for the first three years, but converts to an ARM (and adjusts annually) after three years -An interest rate that is fixed for the first five years, but converts to an ARM (and adjusts annually) after five years -An interest rate that adjusts for the first 5 years and then is fixed (based on an interest rate index at that time) for the next 25 years With so many alternatives available, you can easily find a mortgage that fits your preferences. For example, if you expect that interest rates will decline consistently over time, you may prefer an ARM that is adjusted every year

Estimating the Total Cost of Renting and Owning

-The main cost of RENTING a home is the monthly rent payment. - There is also an opportunity cost of tying up funds in a security deposit. Those funds could have been invested if you did not need to provide the security deposit. Another possible cost of renting is the purchase of renter's insurance. - The primary costs of PURCHASING a HOME are the down payment and the monthly mortgage payment. - The down payment has an opportunity cost because the funds could have been invested to earn interest if they were not tied up in the purchase of the home. Closing costs are incurred at the time the home is purchased, although a portion of these costs might be tax-deductible. additional costs of involves maintenance and repair. Property taxes are assessed annually as a percentage of the home's value. Homeowner's insurance is paid annually and is primarily based on the value of the home.

Economic Impact on Home Values

-economic conditions affect the valuation of homes -as demand for homes increase, prices rise -when economic conditions weaken, and demand declines resulting in lower home prices

estimating the monthly mortgage payment

-many mortgage loan web sites offer mortgage calculators to estimate monthly payments based on a specific mortgage amount, interest rate, and maturity

Transaction Costs of Purchasing a Home

-pre-approval for mortgage -down payment -Mortgage Insurance -closing cost

Affordable Monthly Mortgage Payments

-refer to your cash flow statement -your mortgage payment may replace a rent payment but there are other expenses to consider (homeowners insurance, mortgage, property tax, home repairs) -You should not plan to purchase a home that will absorb all your current excess cash inflows so you can continue savings

Title Search and Insurance

An agreement to purchase a home from a current owner (as opposed to a new home from a developer) typically involves various transaction costs for a title search and insurance conducted by the mortgage company to ensure that the home or property is owned by the seller Title insurance provides you with protection in the event that persons other than the seller show evidence that they hold the actual deed of ownership to the property. It also protects you in the event that there are other liabilities attached to the home that were not discovered during the title search. Both the closing costs and the down payment are due at the time of the closing. Closing costs can be added to the mortgage amount. During the closing, the title for the home is transferred to the buyer, the seller is paid in full, and the buyer takes possession of the home.

The Financial Calculators section of www.calculatorweb.com

An estimate of how much money you could borrow to finance a home, based on your income and other financial information.

2008-2009 financial crisis

-mortgage defaults Interest rates increased. By January 2009, about 10% of all homeowners were late on their mortgage payments or had defaulted on their loans. About 25% of all outstanding subprime mortgages had late payments of at least thirty days. Many financial institutions were involved in providing these mortgage loans, and they experienced large losses or even bankruptcy. -impact on home prices Many homeowners who could not afford the homes they were living in were trying to sell their homes. In some cases, the lenders who provided the mortgages repossessed the homes because the homeowners were no longer making their mortgage payments. Lenders also had hard time selling homes. only way that homeowners could sell their homes was by lowering their price to a level that might attract a potential buyer. These conditions caused home prices to decline substantially. In some areas, home prices declined by more than 50% -resolving the crisis (housing and economic recovery act of 2008) allowed some homeowners to avoid foreclosure. Some financial institutions participated in a voluntary program in which they worked with the homeowners who were at risk of foreclosure. They refinanced the mortgages in a manner that made the payments more affordable to homeowners. Although this was costly to the financial institutions, it was less costly than if foreclosure occurred, leaving them stuck with homes that had lost much of their value. Lenders also allowed homeowners to "short-sale" their homes and pay them back what they were able too -lessons from the crisis granting mortgages to unqualified mortgage applicants could ultimately hurt the mortgage market. Second, it illuminated the risk of owning a home, as real estate prices can decline substantially under some conditions. Third, it showed how economic conditions have a strong impact on the demand for homes and therefore on the prices of homes. Fourth, it demonstrated how housing conditions have a strong impact on the economy because so many jobs are connected to the construction of new homes. -correcting the mortgage application process government implemented the Financial Reform Act (also called the Dodd-Frank Wall Street Reform and Consumer Protection Act) of 2010 to stabilize the mortgage markets. One of the provisions of the act requires that financial institutions granting mortgages verify the income, job status, and credit history of mortgage applicants before approving mortgage applications. This provision is to ensure that mortgage applicants show proof that they qualify for a mortgage before a mortgage loan is granted. In 2014, the Consumer Financial Protection Bureau (CFPB) issued new rules to strengthen the provisions of the 2010 act. The rules define a new class of mortgages called Qualified Mortgages, which are designed to be safer and easier to understand than many of the loans extended before the financial crisis. To issue Qualified Mortgages, lenders must assess a borrower's ability to repay the loan and must ensure that the borrower's total monthly debt-to-income ratio, including mortgage payments, is not higher than 43%. Qualified Mortgages cannot have risky features such as interest-only payments (such loans were common before the financial crisis). The rules also limit the fees that lenders can charge on Qualified Mortgages. In addition, the rules provide more safeguards for borrowers who fall behind in their mortgage payments. Lenders have an incentive to make loans that meet the requirements of Qualified Mortgages because they receive certain legal protections if the borrower fails to repay the loan.

closing costs

A borrower incurs various fees in the mortgage loan application process. These fees are often referred to as closing costs. Under the CFPB's rules, a loan over $100,000 cannot be a Qualified Mortgage if the fees associated with it exceed 3% of the loan amount.

Financing with Fixed-Rate Mortgages

A fixed-rate mortgage specifies a fixed interest rate that is constant for the life of the mortgage. When homeowners expect that interest rates will rise, they tend to prefer fixed-rate mortgages traditional fixed-rate 30 year mortgage is still popular. The interest rate charged on 30 year fixed-rate mortgages is typically related to other long-term interest rates (such as the 30 year Treasury bond rate) at the time that the mortgage is created

Decision to Own a Home Versus Renting

Consider the cost to own a home vs. renting one Some individuals value the privacy of a home, while others value the flexibility of renting, which allows them to move without much cost or difficulty.

How a Mortgage Fits Within Your Financial Plan

The following are the key mortgage loan decisions that should be included within your financial plan: -What mortgage amount can you afford? -What maturity should you select? -Should you consider a fixed-rate or an adjustable-rate mortgage? By making informed decisions, you can avoid accumulating an excessive amount of debt

Interest rate index

The interest rate index to which the mortgage rate is tied must be included in the mortgage contract. Many ARMs use a rate that is tied to the average cost of deposits of financial institutions. For example, the interest rate charged on an ARM might be set at 3 percentage points above that benchmark. Thus, if the benchmark is 4% in a given year, the ARM will apply an interest rate of 7% (computed as 4% + 3%). If the interest rate index has risen to 5% by the time of the next mortgage rate adjustment, the new mortgage rate will be 8% (computed as 5%+3%).

Impact of the Mortgage Amount on the Monthly Payment

The larger the mortgage amount, the larger your monthly payments will be for a given interest rate and maturity

Effects of Business Activity and Zoning Laws

The value of a home is also dependent on the demand for homes in that area or subdivision, which can vary in response to business activity or zoning laws. - Business activity nearby: If a business is offering lots of jobs, it increases demand for housing in an area - Zoning laws: may affect desirability Homes near areas that have just been zoned for industrial use become less desirable. The value of a subdivision can change substantially in response to a change in the public schools that the resident children would attend. Proximity to schools can increase home values, whereas increased distance from schools often lowers home values.

down payment

When you purchase a home, you use your own money to make a down payment and pay the remaining amount owed with financing Your down payment represents your equity investment in the home. conventional mortgages down payment typically 10 to 20% of sale price of home The lender expects you to cover a portion of the purchase price with your own money because the home serves as collateral to back the loan If the home's value declines over time, however, a creditor may not obtain all the funds that it initially lent. Your down payment provides a cushion in case the value of the home declines. The lender could sell the home for less than the original purchase price and still recover the entire mortgage loan.

affordable down payment

You can determine your maximum down payment by estimating the market value of the assets that you are willing to convert to cash for a down payment and for transaction costs (such as closing costs) when obtaining a mortgage. Be sure to maintain some funds for liquidity purposes to cover unanticipated bills.

Financing with Adjustable-Rate Mortgages

adjustable-rate mortgage (ARM), in which the interest owed changes in response to movements in a specific market-determined interest rate. also referred to as a variable-rate mortgage. The advantage of an adjustable-rate mortgage is that the interest rate you pay on your mortgage declines when market interest rates decline, meaning you pay less monthly on mortgage disadvantage of an adjustable-rate mortgage is that the interest rate you pay on your mortgage increases when market interest rates increase

In a condominium,

individuals own units of a housing complex, but jointly own the surrounding land and common areas (such as parking lots) and amenities (such as a swimming pool). The benefits of a condominium are somewhat different from those of a house. Whereas a house is detached, units in a condominium are typically attached, so there is less privacy. Condominium expenses related to the common areas and amenities are shared among unit owners, but the owners of a house pay for all expenses on their own.

Mortgage refinancing

involves paying off an existing mortgage with a new mortgage that has a lower interest rate. may use mortgage refinancing to obtain a new mortgage if market interest rates (and therefore mortgage rates) decline. One disadvantage of mortgage refinancing is that you will incur closing costs again. It is also more likely to be worthwhile when you expect to be living in the home for a long time because you will reap greater benefits from the lower monthly mortgage payments that result from refinancing. If you have an FHA-guaranteed mortgage, you may be eligible for the FHA's "streamline refinance" program, which can be a faster and less expensive way to refinance for some borrowers.

Rate Modification

may be available to some fixed-rate mortgage holders when interest rates decline They may charge a one-time fee that is typically between $500 and $1,500. You would not need to go through the process of refinancing through another mortgage lender or incur costs associated with a new mortgage application Lenders will offer this because if they don't then you will probably leave and find someone else who will

Prequalification and Preapproval for a Mortgage

prequalified: to be prequalified for a mortgage, you contact a financial institution in person, by telephone, or online and describe your income, assets, and liabilities. lender will tell you approximately how large a mortgage you MIGHT qualify for, but the lender does not check your financial condition and does not promise that you will actually be approved for a mortgage of that amount. Nevertheless if you are uncertain about how much you can afford to spend on a home, pre-qualification can help you make that decision. pre-approval: (better option)!!!!!! you provide all the documentation that is required to apply for a mortgage loan, and the financial institution will review it and check your credit report. The process may take 2 to 4 weeks, and the lender may charge an application fee. If you are pre-approved for a mortgage, the lender will give you a letter stating the amount it is willing to lend. The offer of a loan is good for a specific period, often 90 days. pre-approval for a mortgage can be advantageous, especially in a period when homes are in great demand. You know exactly how much money you can afford on a home. Seller doesn't have to wait for you to obtain a mortgage and many lenders will let you lock in your interest rate for mortgage

Impact of the Interest Rate on the Monthly Payment

the higher the interest rate, the larger the mortgage payment Given the large amount of funds that you may borrow to finance a home, you should make every effort to obtain a mortgage loan that has a low interest rate.

Finance section of Yahoo.com and click on Rates under Personal Finance

to get average mortgage rates for specific regions and states.

Mortgage Insurance

If your down payment is less than 20% of the selling price of the home you are buying, the lender will very likely require you to purchase mortgage insurance, which insures the lender in the event that the borrower (homeowner) does not repay the loan. mortgage insurance protects the lender, not the borrower!!!!!! non-FHA mortgage insurance is provided by a private mortgage insurance (PMI) The FHA always requires mortgage insurance, provided by the government, for loans that it guarantees when the down payment is less than 20%. cost typically ranges from 0.3% to 1.5% of the amount borrowed, which represents an annual cost between $300 and $1,500 for a $100,000 mortgage. in non-FHA loans, mortgage insurance can be cancel once you have paid the 20% down payment In some cases, a financial institution that grants a mortgage will cover the private mortgage insurance fee itself rather than charge the homeowner. To compensate, the institution might charge a slightly higher interest rate on the mortgage.

Using Online Realtor Services

Increasingly, online services are being used to facilitate home purchases. www.ziprealty.com allow sellers to present detailed information about their home in a database that is made accessible to potential home buyers. These types of Web sites are sometimes limited to particular cities. The realty company sponsoring the Web site may provide services to complete a contract. The commission for using the online service is less than the traditional commission charged by real estate agents.

initial rate

Many ARMs specify a relatively low initial mortgage rate over the first year or so this rate is only temporary!!!! as the mortgage rate will be adjusted. Under the CFPB's rules, in determining the borrower's ability to repay the loan, the lender will generally have to consider the payment due based on the highest interest rate that could be charged under the mortgage contract.

Finding an affordable home

Most individuals pay for a home with a down payment (perhaps 10% to 20% of the purchase price) and obtain a mortgage loan to finance the rest. A mortgage loan is likely the biggest loan you will ever obtain in your lifetime. You will pay monthly mortgage payments over the life of the loan. The terms for mortgages vary.

Attorney Fees

The borrower who is purchasing the home hires an attorney to review the sales contract on the home, to ensure that the wording of the contract is reasonable. Realtors may have a list of attorneys that specialize in this type of work.

Impact of the Mortgage Maturity on the Monthly Payment

The maturity of the mortgage indicates how long you will take to complete your financing payments and pay off the mortgage. 15 year mortgage has become more popular than 30 since you will be able pay off your home much faster - 15 year mortgage is higher but you pay less interest over the life of the loan and obtain equity in your house faster - By building equity faster, you may also be able to terminate the monthly premiums for mortgage insurance more quickly. Advantage of 30 year mortgage is that you have smaller monthly payments A mortgage longer than thirty years cannot be a Qualified Mortgage, however.

Frequency of Rate Adjustments

The mortgage contract also specifies how frequently the mortgage rate will be adjusted Some adjust it every year meaning the rate will be constant for 12 months and then revised Some allow less frequent adjustments such as every 3 or 5 years Before an ARM adjusts, the CFPB requires the lender to give the borrower sufficient notice so that the borrower can attempt to refinance with another mortgage that is more desirable.

Lessons Learned from Others' Mistakes

They may use the following reasoning to justify spending more than they had intended to purchase the house: -The more expensive house may not require any additional down payment if they just obtain a larger mortgage. -They can possibly obtain a second job to afford the higher mortgage payment. -They will benefit from buying the more expensive home because if prices rise over time, more expensive homes will likely rise in value by a greater degree.

Relying on a Real Estate Agent

You may consider advice from a real estate broker when you assess homes, decide whether to buy a home, or determine which home to purchase you should not rely completely on the advice of real estate brokers because they have a vested interest: They earn a commission only if you purchase a home through them!!!! consider their input, but make decisions that meet your needs and preferences. A good real estate broker will ask you about your preferences and suggest appropriate homes.

amortization table

Your monthly mortgage payment for a fixed-rate mortgage is based on an amortization schedule. This schedule discloses the monthly payment that you will make, based on a specific mortgage amount, a fixed interest rate level, and a maturity.

The Real Estate by Zillow app (by Zillow.com)

allows you to review homes for sale at your present location and displays photos of homes, sales prices, and other details. You can also review homes for sale in other remote locations that you identify.

Economic Impact of purchasing a home

consider the economic conditions and stability of your job situation. If economic conditions weaken, will your job be affected? Your mortgage payments extend for a long period of time, so you should assess the likelihood that you will continue to earn sufficient income each month over the life of the mortgage to make mortgage payments. Although you could obtain another job if you are laid off, you might not be able to earn the same level of income. Thus, you may want to use a conservative estimate of your future income when determining the mortgage payment you can afford, just to make sure that you can afford the home even if economic conditions deteriorate.

Market Analysis

estimate the price of a home based on the prices of similar homes in the area. The market value can be estimated by multiplying the number of square feet in a home by the average price per square foot of similar homes in the area. A real estate broker or appraiser may also provide you with a valuation.

Financing with a Fixed- Versus an Adjustable-Rate Mortgage

primary advantage of an ARM is that the initial interest rate is lower than that of a fixed-rate mortgage. However, if interest rates rise, you may end up paying a higher interest rate on your mortgage than if you had obtained a fixed-rate mortgage.

Obtaining a second opinion on your valuation

remember that brokers represent sellers Be aware, however, that although brokers are experienced at valuing homes, some brokers provide a valuation that is intended to serve the seller rather than the buyer. That is, they may overestimate the value so that potential buyers are convinced that the home is worth buying. In this way, the brokers can ensure that a home will sell and that they will receive a commission. Although many real estate brokers are honest and will provide an unbiased estimate, you should always conduct your own valuation and carefully assess the broker's valuation.

Graduated Payment Mortgage (GPM)

sets relatively low monthly mortgage payments when the mortgage is first created and then gradually increases the payments over the first 5 or so years. The payments level off after that time. This type of mortgage may be useful for someone whose income will increase over time because the mortgage payments will increase as the homeowner's income increases. A graduated payment mortgage would NOT be desirable for people who are not certain that their income will rise.

Refinancing Analysis

should only do if the money you save from paying lower interest rate monthly exceeds the closing cost of refinancing refinancing tends to be more beneficial when a homeowner plans to own the home for a longer period. Taxpayers who itemize their deductions rather than taking the standard deduction for personal tax purposes must consider that their tax benefits of itemizing might be reduced if they pay lower interest payments due to refinancing a mortgage. In addition, the Tax Cuts and Jobs Act of 2017 boosted the standard deduction substantially, which will likely cause most taxpayers to use a standard deduction rather than itemize deductions.

The FHA

will guarantee loans where the borrower makes a down payment as small as 3.5% of the purchase price. It also will guarantee loans where the borrower has a FICO score lower than 580, although a larger down payment is required. Without the FHA guarantee, a lender would probably require a FICO score of at least 620 If you obtain an FHA or VA loan, you will need to maintain an escrow account. Your monthly mortgage payment will include an additional payment for your home insurance and your property taxes The mortgage lender that receives your monthly mortgage payment will place these extra additional payments in your escrow account so that it can pay for your insurance and property taxes on an annual basis.

Balloon Payment Mortgage

sets relatively low monthly payments and then requires one large payment (called a balloon payment) after a specified period (such as five years) to pay off the remainder of the mortgage loan. A balloon payment mortgage is sometimes offered by the seller of a home to the buyer, especially when the buyer cannot afford to make large monthly payments and does not qualify for a more traditional mortgage. In this situation, the seller might provide a mortgage for five years. The expectation is that the buyer's income will rise, enabling the buyer to obtain a traditional mortgage from a financial institution before the end of the five-year period. Then, the buyer will have enough cash to make the balloon payment to the seller. Under the CFPB's rules, a balloon payment mortgage generally cannot be a Qualified Mortgage unless the lender qualifies as a "small creditor" (the seller of the home would likely qualify) and other criteria are met.

Criteria used to select a home

- Price stay within your budget. If in debt, pay that off first before buying a home - Convenient Location minimize commuting time to work or travel time to other activities. You may save ten or more hours of travel time a week as well as saving on gasoline costs. - Maintenance New homes, little maintenance. large yards requires more maintenance. - School System reputation of the school system is very important. Even if you do not have children, the resale value of your house benefits from a good school system. - Insurance will need to purchase homeowner's insurance, which covers the home in case of burglary or damage. It is higher for more expensive homes and for homes in high-risk areas (such as flood zones) because it costs the insurer more to replace parts of the home that are damaged. - Taxes Property taxes are imposed on homes to pay for local services, such as the local school system and the local park system. Taxes vary substantially among locations. Annual property taxes are often between 1% and 2% of the market value of the home. - Homeowner's Association Some homes may be connected to an (HOA) that sets guidelines for the homes and may even assess fees that are used to hire security guards or to maintain common grounds within the area. The monthly fees charged by some homeowner's associations are very high and should be considered when buying a home. -Resale Value highly dependent on its location. Most homes with similar features within a specific subdivision or neighborhood are in the same range. BUT homes in a subdivision that are within walking distance of a school may be worth more than comparable houses several miles from the school. cannot perfectly predict the future resale value of a home, but you can evaluate today's resale value of similar homes in that location that were sold years ago. Keep in mind that when you use a real estate agent to sell a home (as most people do), you will pay the agent a commission that is usually about 6% of the selling price. Thus, if you resell your home for $100,000, you will probably pay a commission of about $6,000 and therefore receive $94,000. The buyer of a home does not pay a commission. - Personal Preferences features such as the number of bedrooms, size of the kitchen, and size of the yard.

www.realtor.com

A listing of homes for sale in an area that you specify and homes in the price and size range that you specify.

Impact of the Financial Crisis on Home Values

During 2003-2006, economic conditions were strong and home builders were constructing many new homes. Mortgage lenders were aggressively attempting to find buyers for these homes because they make profits from their loans (assuming that the borrowers repay their loans) mortgage lenders were providing subprime mortgages, which are mortgage loans to borrowers without sufficient income or a down payment to qualify for prime mortgages lenders willing to provide these mortgages because they could charge a higher interest rate and additional upfront fees to compensate for the higher level of risk. If the borrowers defaulted on the mortgage loans, the mortgage lender could take ownership of the homes. Mortgage lenders were optimistic that home prices would rise or at least not decline, and therefore that the homes would serve as effective collateral in the event that a borrower defaulted on the loan.

Purchasing a house...

Gives buyers immediate satisfaction but won't feel the pain of payments and debt until after the fact Once they are in too much debt it is hard to reverse the damage that has been done Normally, home buyers cannot easily sell a home that they just purchased, and even if they could, the transaction costs are substantial. Therefore, home buyers should carefully assess how much they can afford to spend on a home and should use that amount as a maximum when reviewing homes for sale.

Negotiating a price

You may consider the advice of your real estate broker on the offer that you should make. Most sellers are willing to accept less than their original asking price. Once you decide on an offering price, you can submit an offer in the form of a contract to buy the home, which must be approved by the seller. Your real estate broker takes the contract to the seller and serves as the intermediary between you and the seller during the negotiation process Seller can be accept, reject, or make a counter offer The contract stipulates not only the price, but also other conditions that are requested by the buyer, such as repairs to be completed by the seller and the date when the buyer will be able to move into the home. An offer is commonly contingent on an inspection of the home. You should always have the home inspected, even if it is a newly constructed house. The inspector will determine the condition of the plumbing; the electrical, cooling, and heating systems; and the roof, siding, and other aspects of the house. An inspection for termites and other pests may also be needed. If the inspection discovers some major problems, you may want to withdraw your offer or negotiate a lower price to enable you to pay for repairs. Lenders may require a certificate of inspection before they will extend a loan.

Interest-Only Mortgage

adjustable-rate mortgages that allow home buyers to pay only interest on the mortgage during the first few years. Some buyers liked them because no principal was paid in the first years, so the mortgage payments seemed more affordable. However, the mortgage payment increased abruptly when the homeowner had to begin making principal payments. Some mortgage payments increased by 30% or more, and many homeowners were unable to make their payments. Under the CFPB's rules, interest-only mortgages cannot be Qualified Mortgages, and they are rarely offered today.