Chapter 7

disadvantages of buying

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

disadvantages of renting

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

disadvantages of home ownership

- obtaining money for down payment and securing mortgage financing - changing property values can affect financial investment

advantages of buying

- pride of ownership - financial benefits - lifestyle flexibility

advantages of renting

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

Each discount point is equal to ____ percent of the loan amount and is a premium paid for obtaining a lower mortgage rate

1

5 steps of the home-buying process

1. determine home ownership needs 2. find and evaluate a property to purchase 3. price the property 4. obtain financing 5. close the purchase transaction

payments on a mortgage are usually made over a time period ranging from __________

10 to 30 years

The Homeowners Protection Act requires that a PMI policy be terminated automatically when the equity reaches ________ percent of the property value at the time the mortgage was executed

22

single family dwellings

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

lease

a legal document that defines the conditions of a rental agreement

closing

a meeting of the buyer, seller, and lender of funds, or representatives of each party, to compete the transaction

earnest money

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

closing costs

also referred to as settlement costs, are the fees and charges paid when a real estate transaction is completed

appraisal

an estimate of the current value of the property - can provide a good indication of the price you should set

multiunit dwellings

dwellings with more than one living unit

building a home

for people who want certain specifications.

cooperative housing

form of housing in which the units in a building are owned by a nonprofit organization - shareholders purchase stock to obtain the right to live in a housing unit

Adjustable Rate Mortgage (ARM)

has an interest rate that increases or decreases during the life of the loan - also known as flexible-rate mortgage or variable-rate mortgage

major factors that affect mortgage affordability

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

condominiums

individually owned housing units in a building

security deposit

is usually required when you sign a lease and is often one month's rent

payment cap

keeps the payment on an adjustable-rate mortgage at a set level or limits the amount payments can rise

factory-built houses

living units that are fully or partially assembled in a factory and then moved to the living site (prefabricated home, modular home, mobile home/manufactured home)

_______ is the considered the most important factor when buying a home

location

ARMs usually have a _______ (lower/higher) initial interest rate than fixed-rate mortgages

lower

escrow account

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

major financial benefit on home buying

mortgage interest and real estate may be deducted on your federal income taxes

refinance

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

common down payment sources

personal savings, sales of investments or other assets, and assistance from relatives

points

prepaid interest charged by the lender

what factors affect your offer price on a home

recent selling prices in the area, current housing demand, length of time the home has been on the market, owner's need to sell, features and conditions of the home, mortgage amount for which you qualify

rate cap

restricts the amount by which the interest rate can increase or decrease during the ARM term

2 important motives of many home buyers

stability of residence and a personalized living location

Mortgage payments are set to allow amortization of the loan. What is amortization?

the balance owed is reduced with each payment

costs associated with a closing

title search fee, title insurance, attorney's fee, property survey, appraisal fee, recording fees, settlement fees, wire transfer fee, lender's origination fee, reserves for home insurance and property taxes, interest paid in advance and points, real estate broker's commission

Private Mortgage Insurance (PMI)

usually required if the down payment is less than 20% - protects the lender from financial loss due to default