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College lesson three buying a home. College Renting Buying Advantages Disadvantages More fixed costs for the term of the lease Variable costs Not gaining.

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Presentation on theme: "College lesson three buying a home. College Renting Buying Advantages Disadvantages More fixed costs for the term of the lease Variable costs Not gaining."— Presentation transcript:

1 College lesson three buying a home

2 College Renting Buying Advantages Disadvantages More fixed costs for the term of the lease Variable costs Not gaining equity, but not losing it either Equity may go up, down, or stay stagnant When the lease is up, you can just move If you want to move, home generally must be sold There is generally less work in maintaining a home or apartment Work needs to be done by you--or paid for by you Smaller amount of "up-front" cash Generally a larger initial investment--the down payment Disadvantages Advantages No matter what happens with the value of the home, you will never gain equity Over time, the mortgage balance decreases and equity builds, even if the value of the home does not increase Limited--or no--ability to personalize your living quarters The ability to remodel and redecorate the home to match your needs and desires No tax advantage to renting. Your landlord gets any and all tax breaks that are available There can be tax advantages attached to home ownership. Consult competent legal and/or accounting advice for details for your situation

3 Read the following and let it help you decide if you are going to buy or rent? Advantages of Renting! Generally cost less than buying Total housing costs are clearer. You can usually move more easily. Little responsibility for maintenance. No responsibility for repairs. Disadvantages of Renting! No tax benefit. No investment in or from property. No equity in building. Rent payment can increase frequently. Possibility of eviction. RENTING

4 The Written Lease A lease is a legal document spelling out the conditions under which the renter rents the property. It lists the rights and responsibilities of both the owner, or lesser, and the renter, or lessee. Address and specific apartment number Date signed Signatures of lessee(s) and lesser Date of occupation and length of lease. Cost of rent plus directions for when and where to pay it. Statements on renewal (Is it automatic) Allotment of specific responsibilities, such as shoveling snow, cutting the lawn, repairing, or painting. Entry clause allowing the lesser to enter the apartment for specific reasons with notice or in an emergency. Statement indicating who is responsible for water, electricity, gas, oil or other bills. Security deposit statement noting the amount of deposit, the conditions that must be met before it is returned, and when it will be returned. Clause stating the final inspection of the premises will be made in the lessee's presence. Statement the lease cannot be changed without the written approval of both the lesser and lessee.

5 Read the following and let it help you decide if you are going to buy or rent? Advantages of Buying! Greater stability. Usually a good investment. Your equity builds. First home often leads to a better home. Great individuality in decor. Greater choice in space arrangement. Greater sense of security. Often fulfills the American Dream Disadvantages of Buying! You are responsible for property taxes. You are responsible for maintenance. You are responsible for repairs. Possibility of foreclosure. In foreclosure, lose of all equity. Monthly housing usually cost more. Your cash is tied up. You usually can't sell a home quickly. You have less mobility than renting. Payment on some types of mortgages can increase. BUYING

6 WHAT IS A MORTGAGE What a Mortgage Payment Consists of Principal--The repayment of the original amount borrowed on a monthly basis. Interest--The cost of borrowing the principal amount, repaid on a monthly basis. Taxes -- Real Estate taxes paid to a local government agency. Insurance--Homeowners insurance on the home. The total of these items is known as the PITI ( Principal/Interest/Taxes/Insurance) payment. Types of Mortgages Fixed: A fixed term (for example, 15 or 30 years) as well as a fixed interest rate. The interest rate and term are fixed at the start of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of the mortgage. Adjustable: Often referred to as an ARM (Adjustable Rate Mortgage). The interest rate on your mortgage will be adjusted up or down according to current interest rate levels. The monthly amount for your principal and interest payment will go up or down with these rate changes. How much down payment? One of the first questions that home buyers ask is "how much down payment are we going to need?" Unfortunately, there is no standard answer. Down payments will vary from 0% (with a VA--Veteran's Administration loan) to upwards of 25% (with certain "non-conforming" loans). As an average, most home buyers make down payments in the 5%-15% range, although your own personal situation may dictate more or less down payment. When you are factoring money for a down payment, don't forget about closing costs, which will total in the 2-5% range, payable in cash at the time of closing.

7 Who's Who in the Home Buying Process Real estate professional A person licensed to negotiate and transact the sale of real estate. Hazard insurance Representative A person who provides hazard insurance to protect the homeowner and the lender against physical damage to a property. This insurance may cover fire, wind, vandalism or other hazards. Lender or mortgagee The person or institution that lends mortgage money using the property as security for payment of the debt. Borrower or mortgagor A person who borrows money to buy a home, pledging to repay the money with interest and to maintain hazard insurance on the property. Mortgage insurer An institution that insures the lender against loss in case the borrower does not repay the loan. Loan service The person or institution that insures the lender against loss in case the borrower does not repay the loan. A mortgage may be serviced by someone other than the original lender. Professional home inspector The property or mechanical inspector who examines the home for structural defects, such as problems with the roof, wiring, plumbing or heating and cooling systems. A termite inspector is usually required to evaluate the home for insect damage. Property appraiser A real estate professional, qualified and certified to evaluates a property and assign a market value. Lenders typically require a professional appraisal of the property before approving the mortgage loan. Attorney A person legally appointed or empowered to act for another individual, giving legal advice to clients and representing them in court. The attorney, or lawyer, makes arrangements for the title search, funds disbursement and arranges the legal transfer of ownership.

8 the home-buying process phase 1: determine home ownership needs What type of housing should I (we) buy? How much can I (we) afford to spend? phase 2: locate and evaluate a home Where do I (we) want to live? What aspects of the home need improvement? phase 3: price the property What is an appropriate market price? How much negotiation movement exists? phase 4: obtain financing How much down payment is available? What are current mortgage rates? Can I (we) qualify for a mortgage? What type of mortgage should be selected? phase 5: close the purchase transaction What is the closing date? What funds and documents will be needed for the closing? Is everything understood before the final signing? College – Lesson 3 - Slide 3-A

9 qualifying for a mortgage Determine the estimated value of the home you would like to purchase. Obtain funds for a down payment from savings or through gifts or loans from family members. Reduce other debts or improve your credit record, if necessary. Compare fees, services, and mortgage rates for different lenders. Prepare the mortgage application. your mortgage acceptance will be based on your credit record. The amount of the mortgage for which you qualify will be influenced by: Your income The amount available for a down payment Current mortgage rates College – Lesson 3 - Slide 3-B

10 types of mortgages fixed-rate, fixed-payment mortgages: Conventional 30-year mortgage Conventional 15- or 20-year mortgage FHA/VA fixed-rate mortgage “Balloon” loan (3-10 year terms) adjustable-rate, variable payments: Adjustable-rate mortgage (ARM) Graduated-payment mortgage Growing-equity mortgage other financing methods: Buy-downs Shared-appreciation mortgage (SAM) Second-mortgage (home equity loan) Reverse mortgage Refinancing College – Lesson 3 - Slide 3-C

11 closing costs at the real estate transaction settlement, commonly referred to as the “closing,” the following costs are typically incurred by a person buying a home: Title search fee ($50-$150) Title insurance ($100-$600) Attorney’s fee ($50-$700) Appraisal fee ($100-$300) Recording fees and transfer taxes ($15-$30) Credit report ($25-$75) Termite inspection ($50-$150) Lender’s origination fee (1-3% of loan amount) Reserves for home insurance and property taxes (amount varies) Interest paid in advance (if applicable) College – Lesson 3 - Slide 3-D

12 selling your home before putting your home on the market, make any preparations that could increase appeal and market value Make necessary repairs Paint exterior and interior areas Update various features (such as new carpeting or plumbing fixtures) determine the selling price, based on: An appraisal to estimate current market value; The location, features, and age of the home; and Current mortgage rates and market demand in your area. decide if you will do a "sale by owner" Advertise your home in various media (e.g., newspapers, Internet, flyers) Be ready to meet and show your home to prospective buyers Make use of the services of a lawyer and/or title company for the legal aspects consider using the services of a real estate agent Interview two or more agents to compare their services and experience Expect the agent to provide a marketing plan and to handle the financial and legal aspects of the sale Communicate with the agent on a regular basis regarding the selling price and prospective buyers College – Lesson 3 - Slide 3-E

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