Carl Johnson Financial Literacy Jenks High School

Closing costs – Costs paid when buying a house or real estate Down payment – The part of the purchase price paid in cash up front, reducing the amount of the loan or mortgage Equity – The difference between how much a house is worth and how much is owned on it Mortgage – A loan to finance the purchase of real estate, usually with specified payment periods and interest rates

Buying a house is the most expensive purchase many people will make in their lifetime! It is the fulfillment of a dream, a source of pride and a sense of independence Few people can afford to pay cash when purchasing real estate The average home price in the U.S. is $175,000 Financing a home requires a mortgage, and a mortgage includes interest which adds to the total price of a home

Provides greater privacy and security than living in an apartment You are establishing a sense of permanency because it represents a desire to settle down and build a future You can do what you want to your property – you own it! Be sure and check covenants or homeowner restrictions (Get a copy upon home purchase) The biggest advantage is that you begin to build equity with home purchase Your home is an investment!

Owning a home has tax benefits You can deduct interest from your taxable income on your federal and state tax returns This provides a savings on your tax burden Your property taxes are also deductable each year

Owning a home is a substantial financial commitment Down payment Additional fees Points – a one time fee to bank or mortgage company when you borrow money Title insurance – a charge to inspect the history of the property to ensure that the seller can legally sell the property All costs for utilities If you do not keep the home up, you can risk having the property decline in value thus losing money on your investment

The first step is determining how much house you can afford Most people are inclined to overbuy or to spend more than necessary (not realizing all of the hidden costs) Preapproval is where potential buyers check with their banks or mortgage companies to see what the maximum amount is that they can qualify for You can always spend less They will review your loan application, credit report and other financial information

Prequalifying is different in that it gives you a rough estimate of the amount that you might qualify for When prequalifying a loan, banks want to determine how much you can afford monthly for housing costs including house payment, taxes, insurance and interest Banks use two formulas to determine your loan worthiness Housing expense ratio (28%) Debt ratio (36%)

Closing costs are the expenses you need to pay when getting a home loan Your down payment will range between 3% and 20% of the purchase price You will pay about another 5% in other closing costs Title insurance Attorney’s fees Property survey fees Recording fees Lender’s origination fees Appraisals/Inspections Escrow payments

Down payments are required to protect the lender in case you default(fail to pay) on your loan If you can’t afford to pay the full 20% down, you will probably be required to purchase private mortgage insurance (PMI) PMI guarantees your down payment to the lender Escrow payments are payments made to a special account held by the lender to pay for your property taxes, homeowner’s insurance and other fees that are paid as part of your monthly loan payment

Make a larger down payment – it lowers the amount of money that you are borrowing Shop around for interest rates – the lower the interest rate, the less interest you will pay Make extra payments on your loan – ask that your extra payment go toward the principle

There are two types of mortgage loans Fixed rate – has the same interest rate throughout the entire period of the loan ARM (Adjustable rate) – starts with a lower than average interest rate that gradually increases This would be a better deal if you only plan to be in the home for a few years

Realtors are trained in helping you make good choices in real estate Realtors can help you Find homes that meet your search criteria Help negotiate terms and sales price when making an offer Find the right people for inspections and repairs Be sure and offer several contingencies on your offer (a condition that must be met or the deal is cancelled)

Earnest money is a deposit to show the seller that you are serious about buying the house Realtors are responsible for fairly representing both parties in a transaction The seller of the house is typically responsible for paying the realtor’s fees

Know how much house that you can afford Get preapproved before starting your search Don’t use all the money that the bank will lend Don’t buy the most expensive home on the block