Unit 6.2 Part 2 The Home-Buying

Process

Finding and Selecting a Home

What Are the Steps for Buying a Home?

1. Determine if you should rent or buy

2. Determine how much you can afford to

spend

3. Get your loan Pre-approved

4. Find the kind of home you want and need

and Place an offer on the house

Rule of Thumb – you can afford a house that costs up to

2.5 times your annual gross income. Large debts will reduce this amount

Example: if your annual income is $50,000 and you have little debt, you should be able to afford a $125,000 home. (50000 x 2.5)

*Your Mortgage Loan Officer can help you figure this out.*

Can you Afford It?

Chose a financial institution that you are

comfortable working with. Timing is everything so make sure your

Mortgage Loan Officer knows you timeframe Compare rates and fees

Get your loan Pre-approved

Mortgage (home loan) - Is a loan to purchase

real estate

Principal - Amount you borrow.

Equity - The difference between the value of

your home and the amount you owe.

Title - Legal right to ownership of property

Liens - Claims against property for a debt.

Terms You Should Know

Fixed Rate Mortgage

Usually last 15 - 30 years. Same interest rate. Payment does not change.

Adjustable Rate Mortgage Rate can move up or down with the economy. ARM specifies how often and how much.

Assuming rates will not go up too much, usually lower at first.

Types of Mortgages

FHA Mortgage

For first time home buyers offered by the Federal Housing Administration.

Can get this loan through a bank, savings and loan or other financial institution.

Offer low down payments.

VA Mortgage If you are a military veteran.

Graduated Payment Mortgage Small payments at first and much larger ones later.

Types of Mortgages – Cont

Down Payment

Percentage of the purchase price, 5-20% Closing Costs

Fees and services required to transfer ownership of the property Title search – investigation to see if the property has

debt Moving Expenses

Can you haul yourself or need a u-haul? Other Expenses

Repairs? Utility installations Appliances (replacement of old)

Looking At The Costs

Points

A service fee in the form of a point. Each point equals 1% of the principal. Points are the costs of obtaining the loan.

Homeowners Insurance – paid every 6-12 months Lenders require you to carry it. Helps protect

you against loss, fire, theft and other hazards. Property Taxes – paid once a year

Taxes based on the value of your property.

Looking At The Costs – cont.

You can look by yourself or work with a real

estate agent. Agents are trained to know the market, help

you find the right home, and assist you with the purchase, financing, and closing.

They earn a commission for their work. The seller pays the commission

Finding a Home

You can find a home for sale

Online Newspapers Special print booklets Real estate agent

Use multiple listings: is a real estate marketing service in which agents agree to share commissions on their sales.

Finding a Home – Cont

Market Value

The highest price that the property will bring on the market. The price in which the property could be bought and sold on the market.

Appraisal The estimate of the market value of your home

by comparing it to similar homes that have sold recently.

Home Buying

Offer

A formal document that expresses interest in entering into a contract with someone else. Explains the terms of the purchase Explains what price you are offering The down payment Mortgage amount Dates you will close the deal and take possession

Making an Offer

Earnest Agreement/Money A portion of the purchase price that the buyer

deposits as evidence of good faith to show that the purchase offer is serious.

Counted as part of the total offer amount Takes home off the market Set aside in a separate account until closing Make offer contingent on obtaining financing

and property passing inspection.

Making an Offer – Cont

Acceptance Formal agreement to the terms of an offer,

forming a contract between two parties. If offer is not accepted they may make a

counteroffer. They may make a new offer below the asking price, but higher than the previous offer.

Making an Offer – Cont

Final step is the closing, a meeting between

you, your lender, the seller & other interested parties Review & sign loan documents Exchange of documents between buyer,

seller & lender Disbursement of funds

You receive the deed to the property & join the ranks of homeowners!

Closing