Presentation on theme: "Buying and Selling a Home"— Presentation transcript:
1Buying and Selling a Home Section 7.3Buying and Selling a Home
2The Home Buying Process Buying a home will probably be the most expensive purchase you ever make.You will need to determine your home ownership needs, find and evaluate a property to purchase, price the property, obtain financing, and close the transaction.
3Step 1: Determine Your Home Ownership Needs Consider the benefits and drawbacks of buying a home.Consider the types of homes that are available.Consider how much you are able to spend.
4Owning a residence Benefits Drawbacks Stability and permanence Decorating freedomFinancial benefits$ Value of home usually risesOnce paid off, you don’t have to make any more payments.DrawbacksSaving $ for down payment is hardProperty value may declineLimited mobilityHome maintenance can be expensive
5What are two benefits and two disadvantages of owning a residence?
6Types of Housing Single Family Dwellings Multiunit Dwellings Sits on a separate lot not attached to any other buildingMultiunit DwellingsDuplexes and townhousesCondominiumGroups of apartments or townhouses that people own and not rentCooperative HousingPay monthly fee which covers rent and operating expensesPrefabricated HomesHouses made and partially assembled at a factory. Cheaper than building a home on site.Mobile HomesRarely “mobile”. Assembled at factories and moved to home site.
8Affordability and Your Needs Size and QualityPrice and Down PaymentHow big do you need your home?What quality are you willing to settle for?How much can you spend?Look at your incomeLook at your expensesDo you have anything saved for a down payment?Talk to a loan officer at a bank to get approved for a loan.Trading upBe willing to buy small and “trade up” as you make more money and become more financially stable.
9Step 2: Find and Evaluate a Property to Purchase Select a locationHire a real estate agentConduct a home inspection: you may be able to get the house cheaper
10Step 3: Price the Property Determine the Price of the HomeHow long has the home been on the market?What have similar homes sold for?Do the owners need to sell in a hurry?How well does the home meet your needs?Negotiate the Purchase PriceOffer what you are willing to paySeller may accept or rejectSeller may make counter offerSeller and buyer may agree on priceBuyer may pay seller a portion of price called earnest money.Earnest money shows the offer is serious. Money sits in an escrow account where the $ is held and then applied to the down payment.
11What is an escrow account? What questions should you ask yourself when determining how much to offer for a house?What is an escrow account?What is a counteroffer?
12Step 4: Obtain Financing Determine the amount of down payment. Usually 20% of the purchase price.If you do not have the 20% you will have to obtain private mortgage insurance (PMI).When the buyer has paid between 20-25% of the purchase price, the PMI insurance can be dropped.PMI is a policy that protects the lender in case the buyer cannot make payments or cannot make them on time. You can usually elect to pay the cost of the insurance up front or spread it over payments.
13What are two benefits and two disadvantages of owning a residence?
14Step 4: Obtain Financing A mortgage is a long-term loan extended to someone who buys property. The buyer will borrow money and will need to pay the lender payments (including interest).Mortgages are usually 15, 20, or 30 years.If you fail to make the payments the lender can foreclose or take possession of your home.
16Step 4: Obtain Financing To take out a mortgage, you need to meet certain criteria.Most lenders charge between $100 and $300 to apply for a mortgage.The monthly payments on a mortgage are set at a level that allows amortization of the loan. Amortization is the reduction of a loan balance through payments made over time.
17Adjustable-Rate Mortgage Types of MortgagesFixed-Rate MortgageMortgage with a fixed interest rate and a fixed schedule of payments. Payments are always the same throughout the life of the loan.Adjustable-Rate MortgageInterest rate changes throughout the life of the loan according to economic factors. Your payment may go up or down.Home Equity LoansA loan based on the difference between the value of the home and the amount the borrower owes on the mortgage. (a 2nd mortgage)RefinancingObtaining a new mortgage to replace the existing one. If interest rates fall (from 8 to 4%) you may be eligible to refinance to get lower mortgage payments.
19Step 5: Close the Transaction The final step is closing, which is a meeting of the buyer, seller, and the lender of the funds (or a representative such as a lawyer).At closing, documents are signed, last minute details are settled, and money is paid.The buyer and seller must also pay closing costs.
20Closing Costs for Buyer and Seller ItemBuyerSellerTitle search fee$50-$100$300-$900Title insurance$50-$1000Attorney’s fee$100-$500Property survey----Appraisal fee$100-$350Recording fees$30-$65$35-$65Credit report$35-$75-----Termite inspection$100-$250Lender’s origination fee1-5% of the loanReal estate agent’s commission5-7% of purchase priceInsurance, taxes, and interestVaries
22Selling a HomePrepare your home for selling: The better it looks, the faster it will sell.Determine your selling price. An appraisal (an estimate done by a professional) will tell you what the house is worth.Choose a real estate agent. They will attract buyers and show your home but are paid commission on your sale.Sell it yourself.
23Activity: Find a homeOn your index card is the future occupation that you want to have.I have given you the average starting salary for that occupation.GENERALLY, you can afford a house 2 ½ times your average salary.Search the internet for a house within your price range in the area you want to live.Print out your house and calculate how much your down payment would need to be (20%).