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.