HOUSING: TO BUY OR RENT?

Agenda Overview Rent vs. Buy? Steps to buying a home

Terms to know Interest The cost of borrowing money Principal The amount of the actual loan (money obtained by customer) What is real estate? Ownership of retail or business property What is a mortgage? A loan to purchase real estate in which the property serves as the collateral

Reasons for making a home choice Personal and financial goals Financial resources and readiness Credit history Real estate prices Location preference Expected length of stay in a particular place

What is renting? Renting is the cost of using someone else's property Security Deposit- an advance payment to cover wear and tear on the unit Lease- a legal contract between the tenant and the landlord

What is home ownership? Home ownership means the buyer has purchased a housing unit as property. Home ownership is typically made possible through a mortgage loan, and down payment

Expense comparison

Rent vs. Buy –slide 1 Who pays more, renters or buyers? Short-term? Long-term? Use online tools to determine affordability. Realitor.com has great online tools link to realtor.com website

Rent vs. Buy -slide 2 Class activity worksheet Work in teams!

Rent vs. Buy –slide3 Who is ideal for renting a home? Traditional College Student Someone with an uncertain future (desired new location, unstable/unsecured employment) Someone who wants minimal responsibilities Who is ideal for home buying? A person with stable income and a long employment history Someone who is planning to stay in the same community for at least 5-8 years Someone looking to invest their income

Can I afford to buy? Use online tools to determine what homes you can afford, for easy and accurate calculations Realtor.com link to mortgage calculator on realtor.com

3 realities of home buying 1. Historically low Interest rates link to federal reserve website regarding interest rate history 2. A buyer’s market? Link to real estate charts and graphs 3. Tougher lending standards

Steps to buying a home –slide 1 Step 1: Get your finances in order (6 months before) Step 2: Prequalify for a mortgage (3 to 5 months before) Step 3: Search for a home (2 to 4 months before) Step 4: Agree to terms with a seller (2 months before) Step 5: Obtain a mortgage loan (1 to 2 months before) Step 6: Prepare for and attend the closing (last 4 weeks)

Steps to buying a home –slide 2 Step 1: Get your finances in order (6 months before) Clean up credit report (if needed) Link to get your free credit report Adjust your budget to meet your estimated monthly housing costs

Steps to buying a home –slide 3 Step 2: Prequalify for a mortgage (3 to 5 months before) Three determinants of a mortgage: Amount borrowed Length of loan (e.g. 30 years, 10 years) Interest rate - Link to graph of 30 year interest rates from St. Louis Federal ReserveLink to graph of 30 year interest rates from St. Louis Federal Reserve Credit score- Link to website for FICO scoreLink to website for FICO score Mortgage Tips Tip 1: If a dual-income household, use one income or part-time work for second person to determine mortgage or home affordability Tip 2: Get mortgage quotes from three different lenders

Steps to buying a home –slide 4 Step 3: Search for a home (2 to 4 months before) Online (most helpful) Real estate agent - link to YouTube video: Freakonomics Asks: Does your real estate agent have your best interest in mind?link to YouTube video: Freakonomics Asks: Does your real estate agent have your best interest in mind? Tips: Tip 1: Ask the seller/realtor lots of questions Tip 2: Spend time in the neighborhood Tip 3: Bring a small rubber ball

Steps to buying a home –slide 5 Step 4: Agree to terms with a seller (2 months before) Negotiate a price with the seller Give earnest money to seller when making an offer Have a lawyer go over the contract with you Hire a home inspector before you sign

Steps to buying a home – slide 6 Step 5: Obtain a mortgage loan (1 to 2 months before) Decide on a lender Consider a mortgage lock-in Obtain the formal loan commitment/approval from lender

Steps to buying a home – final slide Step 6: Prepare for and attend the closing (last 4 weeks) Make moving arrangements Activate all utilities Initiate the change of address Correct an errors in the contract or uniform settlement agreement Sign the papers on closing day!

Questions Robert Caldwell

Additional Information

Additional Information-2