Fin 221 Chapter 7
What are the advantages associated with renting an apartment?
- easy to move (mobility) - fewer responsibilities for maintenance - minimal financial commitment
What are some disadvantages of home ownership?
- financial commitment - higher living expenses - limited mobility
Real Estate Agent
- show you homes that meet your needs and parameters - presenting your offer - negotiating a settlement price - assisting you in obtaining financing - Representing you at closing - RE agent's commission is usually paid by the SELLER.
Private Mortgage insurance PMI is required when the down payment is less than
20%
Down Payment Amount
20% ideal
The Homeowner Protection Act requires that a PMI policy be terminated when the equity reaches ___ of the property value at the time the mortgage was executed
22%
Fixed rate/ Fixed Payment mortgages
Amortization Schedule: details amounts paid and balances owed over the life of the loan
Renting advantages
Easy to move (mobility) Fewer maintenance responsibilities Minimal financial commitment
Government Financing
FHA (Federal Housing Authority) - generally for low/middle income VA (veteran's administration) - elgible armed forces veterans, without downpayment
(T or F) Two external (market) factors that affect the price of a home are the current demand for housing and the financing options (interest rates) available.
True
Source of $$ for down payment
YOUR savings personal gifts (parents/grand parents)
Location
Zoning laws School Systems
Reverse Mortgage
a loan for living expenses that is repaid when the homeowner sells the home or dies
The Closing
a meeting of the seller, the buyer, and the lender of funds, or representatives of each party (Real Estate Agent), to complete the transaction Documents signed, last minute details are resolved, and funds are exchanged
Evaluating Renting vs. Buying
consider lifestyle preferences types of units
Second Mortgage
home equity loan or line of credit
Escrow account
money, usually deposited with the lending institution, for the payment of property taxes and insurance
Earnest Money
part of the offer, buy must present $$ as evidence of good faith. At closing, this money is applied toward the down payment or returned if the deal does not go through
Deed
the document that transfer ownership of the property from one party to the other
Types of Housing Available
1. single family dwellings 2. multiunit dwellings 3. Condos 4. Cooperative housing 5. Manufactured homes 6. Custom built
Disadvantages of home ownership
Financial commitment Higher living expenses Limited mobility
Home inspection
Home Purchase agreement may include "subject to inspection" Bank will require an appraisal (not an inspection)
Interest only mortgages
No equity, no appreciation
An adjustable rate mortgage usually has a rate cap and a _____ cap
Payment
Factors to consider when buying
Recent selling prices in the area, current demand, how long on the market, owner's need to sell, financing options, features and conditions of the home
Costs included in renting
Security Deposit Living expenses (what utilities are covered) Renter's insurance
Selling your home
- Prepare your home - Determining the selling price - Sale by Owner - Listing with Real Estate Agent
Can affect mortgage affordability
- the amount of income you earn - down payment - mortgage rates - the length of the loan
Title Insurance (2 phases)
1. before closing: Title Co. conducts search to define the boundaries of the property being purchased and conducts a search to determine if it is free of claims (such as unpaid Real estate taxes, contractor's fees) 2. During the term of the mortgage, Title Co. protects the owner and the lender from any unforeseen claims or defects of the title
Variable rate/ Variable payment mortgage
ARM's have interest rates that can increase or decrease during the life of the loan The borrower bears the risk of future interest increase Typically have rate cap and/or payment cap
When purchasing a home, the buyer (not the seller) can expect to pay closing costs such as?
Appraisal fee Termite inspection Title search fee
Refinancing your mortgage
If interest drops
Initial offer
In a form of a purchase agreement or contract which is your legal offer to purchase the home If accepted, you have a valid contract If rejected, you have several options; walk away, counter price, negotiate items, closing date, etc.
Negotiating the Price
Initial offer Counteroffer Earnest Money Contingency Clause
Contingency Clause
Initial offer/ purchase agreement may contain a contingency clause; ability to obtain financing, subject to sale of buyer's current home, etc.
How could the tax benefit and risk of a home equity loan best be described?
Interest is tax deductible, but default could mean foreclosure
Determine how much you an afford
Never spend more than 25% of your take home day on housing (mortgage, interest, taxes, and insurance) or Should not cost more than 2 - 2 1/2 times your annual income
Renting disadvantages
No tax benefits Limitations on remodeling and decorating Restrictions on pets, noise, and other things (sublet)
Points
Prepaid interest charged by lender 1 point = 1% of the loan amount
Advantages of home ownership
Pride of ownership Financial benefits limited mobility
Private Mortgage Insurance PMI
Required if DP less than 20%
Determining down payment
Size of the down payment directly affects financing Bigger the down payment, the easier to obtain favorable financing and shorter mortgage
The main factor to consider when refinancing a loan at a lower rate
The cost of refinancing vs. the benefits (savings) of lower monthly payments
Lease
legal document that defines the conditions of a rental agreement
Term (Mortgage)
length of the loan 15-year instead of 30-year - increase equity growth and reduce interest
your ____, needs, desires, and attitudes are reflected in your choice of a home
lifestyle
Factors to consider in qualifying for a mortgage
your income, other debts, amount of down payment, length of the loan, current mortgage rates
Qualifying for a mortgage
· 1. Complete mtg application; meet with lender; present proof of employment and Balance Sheet · 2. Lender obtains credit report/verifies your application and finances. With credit score of 620 or more, can obtain financing. The higher the score, the lower the mortgage interest rate. · 3. Either approved or denied based on your financial history and the proposed home.
Closing Costs
title search fee title insurance Attorney's fee Property Survey Appraisal fee Recording the deed/ transfer taxes Settlement fee Termite inspection Lender's origination fee Re broker's commission
When it comes to the size of manufactured homes, which one of the following is true?
typically these homes are smaller than 1,000 sq. ft.
Title
"right" to own/use the property
Counteroffer
Back and Forth and back and forth Sellers Market - seller has upper hand Buyers Market - buyers have the demand (better price)
Size and Quality
"starter home" Handyman's special
Common sources of down payment funds to purchase a home include:
- the sale of investments - assistance from relatives - personal savings
The expenses covered by a condominium monthly fee include
-improvements - insurance for common areas - maintenance and repairs
The benefits of a FHA/VA fixed-rate mortgage included
-low down payment - may be assumable with no prepayment penalties
Home Buying Process
1. Determine home ownership needs 2. Find an evaluate a home to purchase 3. Price the property 4. Obtain Financing 5. Closing and Purchasing Transaction
Steps in the mortgage process
1. complete mortgage application and present evidence of income, etc. 2. lender gets credit report, confirms financial aspects 3. mortgage is approved or denied