Post on 21-Sep-2020
Unit10:AcquiringaHome
PersonalFinancialLiteracy
Objec.ves
• Comparetheadvantagesanddisadvantagesofren.ngandowningahome.
• Definetermsrelatedtofinancingahouse.• Dis.nguishamongtypesofmortgages• Arrangeinorderthestepsinbuyingahome.• Stateguidelinesfores.ma.ngabudgetforhousing.
AdvantagesofRen.ng
• Greaterflexibilityinmoving • Notresponsibleforhomerepairsorimprovements
• Nodownpayment • Nohugemortgage • Nopropertytaxes
AdvantagesofRen.ng-Con.nued
• Noworryaboutpropertyvalues • Limitedresponsibili.es • Predictablecosts
AdvantagesofOwning-Con.nued
• Taxadvantages:interestandpropertytaxesarededuc.ble
• Privacy
DisadvantagesofOwning
• Hugeresponsibility• Downpayment• Mustbeapprovedforfinancing• Mustpayforhomemaintenanceandrepairs• Coststendtobehigher• Hardertomove• Higherinsurancepremiums• Propertytax
DisadvantagesofRen.ng
• Securitydeposit• Notaxdeduc.ons• Rentersinsuranceneededtoprotectbelongings• Nosenseofownership• Unabletomakepermanentchangestoresidence• OPenaren'tallowedtohavepets • Lackofprivacy• Noequity
Mortgage
• Financialandlegalagreementbetweenborrowerandlender
• Lendergivesloaninexchangeforlienonproperty
• Ifborrowercan’tmakepayments,lendercantotakehouse
ChoosingtheRightMortgage
• Howlongdoyouexpecttohavemortgage?•Whatkindofmonthlypaymentcanyouafford?
•Willingtotakeariskwithfluctua.nginterestrate?
•MemberoftheArmedForces?
TypesofMortgages
• Fixedratemortgages– Notinsuredorguaranteed– LendermayrequirePrivateMortgageInsurance(PMI)un.laborrowerhas20%equity– Fixedinterestrateforlifeofloan
ARMs
• Adjustableratemortgages– Rateincreasesordecreasesaccordingtoeconomicindicators– Maystartwithlowerinterestratethanconven.onalloan– Interestratecanrise
BalloonMortgages
• 30-yearamor.za.on• Requiresbalanceofmortgageatendofmuchshorterterm
SpecialLoans
• Insuredorguaranteedbyfederalgovernment• Lowerinterestrates• Lowdownpayment– VA(VeteransAdministra.on)forveteransandac.vedutymilitarypersonnel
– FHA(FederalHousingAdministra.on)basedonincome
ReverseMortgages
• Usuallyre.reeswithalotofequity• Lender“purchases”housebymakingpaymentstoseller• At.meofdeath,lenderownshome• Verycostly,highfees
TypesofHousing
• Single• Condominium• Townhouse• Duplex
WhatareYouLookingFor?
• Loca.on• Size• Type• Ameni.es• Needvs.op.onal• Budget• Buyer’smarketvs.seller’smarket
Pre-Approval
• Tellsyouexactlywhatlenderwillloan• Onlyanes.mate• Morereliableindicatorofwhatyoucanaffordthanprequalifying
• Shoparound
PurchaseAgreement
• Describesproperty,includingloca.onandfurnishingsorequipment
• Condi.onsandtermsofsale• Bothbuyerandsellersign• Buyerdepositsearnestmoney
AppraisalandTitleSearch
• Appraisalassessesvalueofproperty• Includessurveyofpropertylines• Titlesearch– Titlegiveshistoryofproperty;warnsofpoten.alproblems
CostsRelatedtoClosing•Downpayment•Origina.onfeeforprocessingloanapplica.on•Titlesearch•Surveyfees•Titleinsurance•Appraisals•Creditreports•Filingorrecordingfee•Inspec.ons(paidatinspec.on,notclosing)
HousingExpenseRa.o
• Borrowerscanaffordupto28%onhousingpayments(includingpropertytaxesandhomeownersinsurance)
• Basedongrossincome
DebtRa.oFormula
• Debtpayments,includinghousingpayments,shouldnotexceed36%.
UnitReview
1. Dis.nguishbetweenadvantagesanddisadvantagesofren.ngahome.
2. Discussthecostsandbenefitsofowningahome.
3. Explainwhatamortgageis.4. Howisamortgagepaymentcalculated?5. Whatarethetypesofques.onsyoushould
askyourselfbeforeshoppingforamortgage?
UnitReview-Con.nued6. Whatmortgagetermwouldallowyoutobuildequity
inahomefaster?7. Compareandcontrastfixedratemortgageswith
adjustableratemortgages.8. Ifahomebuyerwithafixedratemortgageof
$100,000wantedtoavoidpayingPMI,howmuchwouldheorsheneedforadownpayment?
9. Discussspecialmortgageloansandtheagenciesaffiliatedwiththem.
10. Discusstypesofhousingahomebuyermightconsider.
UnitReview-Con.nued11. Dis.nguishbetweenprequalifyingand
preapprovalforhomefinancing.12. Whataretheadvantagesofusingarealtorto
buyahome?13. Discusswhatoccursduringtheapprovalprocess
ofbuyingahome.14. Listatleastfiveofthefeesassociatedwitha
closing.15. Dis.nguishbetweenthehousingexpensera.o
andthedebtra.oformulaes.ma.ngahousingbudget.