the housing expenditure. objectives discuss the options available for rented and owned housing and...
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The Housing Expenditure
Objectives
Discuss the options available for rented and owned housing and whether renters or owners pay more for housing.
Determine how much buyers can afford for housing.
Discuss the various mechanisms for financing a home.
Objectives
Identify the numerous costs of buying a home, including principle, interest, and closing costs.
List and describe the steps in the home-buying process.
Identify some important concerns in the process of selling a home.
Renting Your Residence
Advantages Mobility Fewer responsibilities Lower costs initially More amenities
Disadvantages Few financial benefits Restricted lifestyle Cost of renting - deposits Legal concerns of a lease
Advantages of Owning
Pride of ownership American dream/norm
Reduced income taxes deduct property taxes deduct mortgage interest
Advantages of Owning
Build an equity pay down the loan price appreciation
Builds your credit rating Hedge against inflation Lifestyle flexibility
can express your individuality
(continued)
Disadvantages of Owning
Financial risk need down payment home prices could drop
Limited mobility can take time to sell
Higher living costs maintenance repairs & improvements utilities & insurance real estate taxes
Housing Options for Home Buyers
Single-family dwelling tract housing built on speculation by builder built to your specifications previously lived in home manufactured home mobile home
Renting vs. Owning Your Home
Based on cash flow, renters appear to win
After taxes and appreciation, owners usually win
WHO PAYS MORE:
Home Buying Process Step 1: Determine Ownership Needs
How much you can afford down payment loan amount size and quality handyman’s special sweat equity
Home Buying Process Step 2: Finding and Evaluating a Property to Purchase
Select a location Zoning laws Covenants, codes and restrictions Using a real estate agent Property appraisal Conducting a home inspection
9-15
Home Buying Process Step 3: Pricing the Property
Determining the price to offer Negotiating the purchase price
seller’s or buyer’s market earnest money
Contingency clauses home passes
structural inspection able to get a loan
Determine the amount of down payment mortgage insurance
Qualifying for a mortgage can be pre-qualified based on income, assets,
debts, credit history and length of loan purpose of “points” (prepaid interest)
The home loan application process fixed or adjustable rate mortgage locking in an interest rate - search Web
Home Buying Process Step 4: Obtaining Financing
Qualifying for a Mortgage
Amount available for down payment Amount of income Amount of other debts Credit rating Current mortgage rates Length of loan desired
Estimating Mortgage Loan Payments for Principal and Interest
Estimating Mortgage Loan Payments for Principal and Interest(Monthly Payment per $1,000 Borrowed)
Payment Period (Years)
InterestRate (5)
15 20 25 30
4.5 $7.6499 $6.3265 $5.5583 $5.0669
5.0 7.9079 6.5996 5.8459 5.3682
5.5 8.1708 6.8789 6.1409 5.6779
6.0 8.4386 7.1643 6.4430 5.9955
6.5 8.7111 7.4557 6.7521 6.3207
7.0 8.9883 7.7530 7.0678 6.6530
7.5 9.2701 8.0559 7.3899 6.9921
8.0 9.5565 8.3644 7.7182 7.3376
8.5 9.8474 8.6782 8.0523 7.6891
9.0 10.1427 8.9973 8.3920 8.0462
9.5 10.4422 9.3213 8.7370 8.4085
10.0 10.7461 9.6502 9.0870 8.7757
Note: To use this table to calculate a monthly mortgage payment, divide the amount borrowed by 1,000 and multiply by the appropriate figure in the table where the interest rate and the time period for the loan intersect. For example, a $150,000 loan for 30 years at 9 percent would require a payment of $1,206.93 [($150.000/1,000) x 8.0462]; over 15 years it would require a payment of $1,521.41.
Effect of Down Payment
Effect of Down Payment Size on Monthly Payment for a $150,000 Home(7 Percent Mortgage Loan for 30 Years)
DownPayment
AmountOf Loan
MonthlyPayment
$5,000 $145,000 $964.69
10,000 140,000 931.42
15,000 135,000 898.16
20,000 130,000 864.89
25,000 125,000 831.63
Conventional fixed rate, amortized 5, 10 or 20 percent down 15, 20 or 30 years of fixed payments
Government guaranteed Veterans Administration Federal Housing Administration
Adjustable rate mortgages varies with the prime rate but has a rate cap
Type of Mortgages
Type of Mortgages
Graduated payment payments start lower and go up for persons whose income will increase
Balloon fixed monthly payments plus one large
payment, usually after 3, 5 or 7 years Growing equity
payment increases to allow loan to be paid off more quickly
(continued)
Type of Mortgages Shared appreciation
borrower agrees to share appreciated value of the home with the lender
Home equity loans a second mortgage home is collateral and interest may be tax
deductible Reverse
a loan based on the home equity Refinancing
(continued)
Title insurance and search fee Attorney’s and appraisers fees Property survey Recording fees; transfer taxes Credit report Termite inspection Lender’s origination fee Tax and insurance reserves Pre-paid interest Real estate commission
Home Buying Process Step 5: Closing the Purchase Transaction
Closing Costs
The Main Elements of Buying a Home
Location Down payment Mortgage application Points Closing costs TIPI (taxes, insurance, principal, interest) Maintenance costs
Selling Your Home
Preparing your home Determining the asking price
Appraiser Realtor
For sale by owner or use a broker Listing with a real estate agent
Make Sure Security Deposit Is Returned
1. List damages/defects before moving in unit. 2. Maintain unit and promptly notify landlord of
any problems. 3. Give proper written notice of intent to move. 4. List all damages/defects after moving out of
unit. 5. Use certified mail to request return of
security deposit. 6. Use small claims court, if necessary.
Types of RealEstate Agents
Listing agent
Selling agent
Buyer’s agent
Dual agent