Chapter 22

Buying a Home

Goals for Chapter 22.1

• Discuss the financial and quality-of-life advantages of home ownership.

• Describe the costs and responsibilities that accompany home ownership.

Advantages of Home Ownership

• Increase in Equity– The market value of a home is the highest

price that the property will bring on the market.– Equity is the difference between the market

value of property and the amount owed on it.– How does your equity increase?

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• Tax Savings– Your mortgage interest and your property taxes

are tax deductible.

• Quality of Life

Costs and Responsibilities of Home Ownership

• Down Payment– Most loans require a down payment of 10-30 percent.

(You need 20% to avoid paying PMI.)

– Mortgage• A loan to purchase real estate is called a mortgage.

• Mortgages can range from 10-30 years.

– Closing Costs• Closing costs are the expenses incurred in transferring

ownership from buyer to seller in a real estate transaction.

– Property Taxes– Insurance– Utilities– Maintenance and Repairs

Goals for Chapter 22.2

• Describe the steps in the home-buying process, from selecting a home to buy through taking possession of it.

• Discuss how to obtain financing and the events that occur at closing.

Working with a Real Estate Agent

• Commissions range from 5-7 percent.

• Agents have access to the Multiple Listing Service (MLS), which is a real estate marketing service in which agents from many agencies pool their home listing and agree to share commissions on the sales.

Making an Offer

• An offer is a formal document that expresses interest in entering into a contract with someone else.

• You will need to include earnest money with your offer. Earnest money is a portion of the purchase price that the buyer deposits as evidence of good faith.

• An acceptance is a formal agreement to the terms of an offer.

• If the seller wants to change any part of the offer, he or she makes a counteroffer.

Obtaining Financing

• Down Payment Sources

• Qualifying for a Mortgage

Types of Mortgages

• A fixed-rate mortgage is a mortgage on which the interest rate does not change during the term of the loan.

• An adjustable-rate mortgage is a mortgage for which the interest rate changes in response to the movement of interest rates.

Taking Title to Property

• At the closing, you will be given the title to the property.

• The title is a legal document that establishes ownership.

• The deed is a legal document that transfers title of real property from one party to another.