BUS 160

interest-only mortgage

allows a home buyer to have lower payments for the first few years of the loan. higher payments will occur later in the loan

what does subletting mean

allows you to have another person take over rent payments and live in the rental unit

what happens during a oral lease

-one party must give a 30 day written notice to the other party before terminating the lease or imposing a rent increase

advantages of buying

-pride of ownership -financial benefits -lifestyle flexibility

benefits/drawbacks about conventional 30 year mortgage

-BENEFIT: -fixed monthly payments for 30 years provide certainty of principal and interest payments -DRAWBACKS: -higher initial rates than adjestiables

benefit/drawback of FHA/VA fixed rate mortgage (30 year and 15 year)

-benefit: -low down payment requirements and may be assumable with no prepayment penalties -drawback: -may require additional processing time

benefits/drawbacks of conventional 15 or 20 year mortgage

-benefit: -lower rate than 30-year fixed; faster equity buildup and quicker payoff of loan -drawback: -higher monthly payments

benefits/drawbacks of interst-only mortgage

-benefits: -lower payments; more easily affordable -drawbacks: -no decrease in amount owed; bo building equity unless home value increases; usually must convert to a higher fixed rate mortgage after 10 years

advantages of renting

-easy to move -fewer responsibilities for maintenance -minimal financial commitment

disadvantages of buying

-financial commitment -higher living expenses than renting -limited mobility

how to decide between choosing a lower rate with more points or a higher rate with fewer points

-if you plan to live in your house a long time (over 5 years), the lower mortgage rate is probably better -if you plan to sell your home in the next few years, the higher mortgage rate with fewer discount points may be better

disadvantages of renting

-no tax benefits -limitations regarding remodeling -restrictions regarding pets, other activities

home buying activities

1.) determine home ownership needs: -evaluate owning your place of residence -assess types of housing units -calculate the amount you can afford 2.) find and evaluate a property to purchase: -select a location -consider using a real estate agent -conduct a home inspection 3.) price the property: -determine an appropriate market price -negotiate an agreement price 4.) obtain financing: -determine amount of down payment -investigate the rates and conditions of mortgages -apply for mortgage and evaluate types of mortgages 5.) close the purchase transaction: - arrange a closing date -obtain funds and documents for closing -request clarification of unclear aspects of the transaction

what to consider when evaluating adjustable rate mortgages

1.) determine the frequency of and restrictions on allowed changes in interest rates 2.) consider the frequency of and restirctions on changes in the monthly paymeny 3.) investigate the possibiliity that the loan will be extended due to negative amortization, and find out if a limit exists on the amount of negative amortization 4.) find out what index is used to set the mortgage interest rate

what are the housing rental activites

1.) the search: -select an area and rental amount -compare costs and facilities of comparable units -talk to current and past residents 2.) Before signing a lease: -verify lease starting date, costs, and facilities -talk to a lawyer about unclear aspects of the lease -note in writing, signed by the owner, the condition of the rental unit -remember, if two names are on the lease, one person can be held responsible for the full rent 3.) Living in rental property: -keep all facilities in good condition -contact the owners regarding needed repairs -respect the rights of others regarding noise -obtain renters insurance for personal belongings and liability situations 4.) at the end of the lease: -clean the apartment; leave it in the same condition as when you moved in -tell landlord where to send your security deposit - require that any deductions from your security deposit be documented

applying a mortgage involves three main phases

1.) you complete the mortgage application and meet with the lender to present evidence of employment, income, onwership of assets, and amounts of existing debts 2.) the lender obtains a credit report and verifies your application and financial status 3.) the mortgage is either approved or denied, with the decision based on your financial history and an evaluation of the home you want to buy

deed

a document that transfers ownership of property from one party to another

adjustable-rate mortgage (ARM)

a home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexblerate mortgage or a variablerate mortgage

what is a lease

a legal document that defines the conditions of a rental agreement it presents: -a description of the property, including address -the name and address of the owner/landlord -the name of the tenant -the effective date of the lease and the length of the lease -the amount of the security deposit and the amount and due date of the monthly rent -the date and amount due of charges for late rent payments -a list of the utilities, appliances, furniture, or other facilities that are included in the rental amount -restricitions regarding certain activities; tenants right to sublet -charges for damages or for moiving out of the rental unit later than the lease expiration date -the conditions under which the landlord may enter the apartment

earnest money

a portion of the purchase price deposited as evidence of good faith

counteroffer

a willingness to negotiate a price.

appraisal

an estimate of the current value of a property. likely to cost between 200 and $300.

how to calculate you monthly gross income

annual income divided by 12

manufactured homes

assembled in a factory and then moved to the living site.

benefit/drawback of adjustable rate mortgage (ARM)- pyament changes on 1-, 3-, 5-, 7-, or 10-year schedules

benefit: -lower initial rates than fixes-rate loans, particularly on the 1-year adjestable. offers possibility of future rate and payment decreases. Loans with rate "caps" may protect borrowers against increases in rates -drawbacks: -shifts far greater interest rate risk onto borrowers than fixes rate loans. may push up monthly payments in future years.

second mortgage

commonly known as a home equity loan. allows a homeowner to borrow on the paid-up value of the property

implied warranties

created by state laws may cover some problem areas; other repair costs can occur.

multiunit dwellings

dwelling with more than one living unit. -duplex: a building with seperate home -townhouse: may contain two, four, or six living units

financial literacy in practice

feature offers guidance on actions you might take if your property taxes rise to an inappropriate level

closing costs

fees and charges paid when a real estate transaction is completed; also called settlement costs

cooperative housing

form of housing in which the units in a building are owned by a nonprofit organization. the shareholders purchase stock to obtain the right to live in a unit in the building. while the residents dont own the units, they have the legal right to occupy a unit for as long as they own stock in the cooperative association. this ownership is different from condomoniums, in which residents own the individual living unit

prefabricated homes

have components built in a facotry and then assembled at the housing site

the real estate settlement procedures act

helps buyers understand the closing process and closing costs. this legislation requires that loan applicants be given an estimate of the closing costs before the actual closing

concept of lifestyle

how you spend your time and money

single-family dwellings

include previously owned houses, new houses, and custom-built houses

condominiums

individually owned housing units in a building. ownership doesnt include common areas, such as hallways, outside grounds, and recreational facilties.

title insurance

insurance that, during the mortgage term, protects the owner or the lender against financial loss resulting from future defects in the title and from other unforeseen property claims not exluded by the policy

buy-down

is an interest rate subsidy from a home builder, a real estate developer, or the borrower that reduces the mortgage payments during the first few years of the loan.

payment cap

keeps the payments on an adjustable-rate mortgage at a given level or limits the amount to which those payments can rise.

mortgage

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

escrow account

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

how to calculate your monthly mortgage payment

multiply the factor from the number of thousands of the loan amount--- have to look at the chart

mobile home

not completely accurate term since very few are moved from their original sites

refinance

obtain a new mortgage on your current home at a lower interest rate

points

prepaid interest charged by the lender

reverse mortgages

provide homeowners who are 62 or older with tax-free income in the form of a loan that is paid back (with interest) when the home is sold or the homeowner dies

rate cap

restricts the amount by which the interest rate can increase or decrease during the ARM term. this limit prevents the borrower from having to pay an interest rate significantly higher than th eone in the original agreement

contingency clause

starting the agreement is binding only if a certain event occurs

negative amortization

the amount of the home equity is decreasing instead of increasing. increased loan balance

assessed value

the amount that your local government determines your property to be worth for tax purposes. typically lower then market value

amortization

the reduction of a loan balance through payments made over a period of time.

warranty deed

the seller guarantees the title is good

conventional mortgage

usually had equal payments over 15,20, or 30 years based on a fixed interest rate.

security deposit

usually one months rent. is held by the landlord to vocer the cost of any damages. After you vacate the rental unit, your security deposit should be refunded within a reasonable time if there are no damages.