Buying a Home

Renting vs. Buying Renting: ◦You rent the house from a landlord who owns the house ◦Landlord is responsible for major repairs ◦Easy to move ◦Any improvements done by you don’t really benefit you economically Buying: ◦You own the home ◦Loan for the home is called a mortgage ◦Usually 30-year term ◦Improvements earn you equity in the home

Benefits of Homeownership OWN home – pride; settled down Investment in the future Sometimes mortgage payments are less than rent Tax breaks for interest on the mortgage Paying a mortgage correctly builds credit scores

Realities of Homeownership Ongoing costs – mortgage, repairs, utilities, property taxes, etc. Difficult to move Responsible for upkeep & maintenance Increased value not guaranteed Failure to repay mortgage leads to foreclosure

Paying for a Home Get a mortgage Usually years Interest rates range from 3-6% lately ◦Depends on credit score ◦Pay less interest over time with larger down payment and shorter term Monthly payment to bank includes other costs, like homeowner’s insurance & property taxes National Average = $222,261 loan with a $1,061 average payment for a 30-year mortgage at 4% 3 types of mortgages: ◦Conventional ◦VA ◦FHA

Types of Mortgages: Conventional Loans Established guidelines for credit scores, income requirements, & minimum down payments (5-20%) Guidelines set by Fannie Mae and Freddie Mac Fixed of adjustable interest rates Last years Costs: origination fees, down payments, mortgage insurance, appraisal fees Pros: fewer hurdles than FHA or VA loans; equity builds quickly Ideal for borrowers with excellent credit who can afford a sizeable down payment

Types of Mortgages: VA Loans Available for US military veterans & active duty personnel VA does not loan money, rather it backs loans by banks to veterans Can get up to $417,000 with no money down Still need to qualify with respect to income & credit score; may have to pay closing costs Costs: VA Funding Fee (2.15 – 2.4%) Pros: qualify for 100% financing; no PMI Cons: must produce a Certificate of Eligibility, pay VA funding fee, meet creditworthiness guidelines (FICO score 680 or higher)

Types of Mortgages: FHA Loans Federal Housing Administration backs private mortgages Fastest growing loan program Ideal for borrowers with lower credit scores or smaller down payments Legislation dictates: ◦Downpayment gifting prohibited ◦Minimum downpayment 3.5% ◦PMI up to 3% by FHA Pros: qualify for higher mortgage than with conventional loan; low downpayment Cons: upfront mortgage insurance premium; ongoing annual premiums; house inspection requirements ◦Missing handrails ◦Damaged doors ◦Damaged windows ◦Defetive paint ◦Minor plumbing leaks ◦Defective floor finish ◦Termite damage ◦Worn out counter tops ◦Damaged plaster or sheetrock ◦Trip hazards ◦Lack of an all-weather driveway surface ◦Heavy traffic ◦Proximity to power lines & radio/TV towers ◦Pipes

Step 1: Determine Housing Needs Plan for the future & lifestyle # Bedrooms? # Bathrooms? Garage? Yard? “Open Concept” ? Type of neighborhood? Distance from work?

Step 2: Determine Your Budget Housing should be no more than 30% of your income Banks will not give mortgages that you technically cannot afford, BUT ◦They will give you mortgages that are difficult to afford! ◦Get pre-approved for a mortgage before you begin house hunting ◦Also consider your down payment, which must be anywhere from 3.5% - 20% of the sale price In some areas, renting will be the better financial option ◦In other areas, mortgage payments are actually cheaper than rent amounts

Step 3: Search for Homes Link up with a realtor Use the apps: ◦Zillow ◦Trulia ◦Realtor Filter by location, budget, size, # bedrooms, # bathrooms, age of home, etc.

Step 4: Visit Homes Realtors will take you to see houses Things to look for: ◦Cracks in foundation ◦Age of windows ◦Leaky faucets, toilets, showers, pipes, etc. ◦Mold ◦Water damage in walls & ceilings ◦Condition of roof ◦Location – busy roads; access to supermarkets & shops; hospitals; etc. Things that can be easily changed: ◦Paint colors ◦Flooring ◦Light fixtures ◦Just be cognizant of your budget

Step 5: Make an Offer In some countries, prices are not really negotiable In the US, it is common to negotiate sale prices Realtors can help determine an appropriate number Don’t offer more than you’re pre-approved for Your offer will be denied or accepted within a few days & you’ll sign a contract ◦In some states, including NJ, this contract must be reviewed by an attorney before the final sale

Step 6: Inspections & Paperwork Before the house can be sold, it must go through an inspection ◦Cost varies ◦Get report with problems of house, ranging from a leaky faucet to cracks in the foundation ◦Can often negotiate sale price based on findings of inspection The bank will require an appraisal of the house before it gives a mortgage ◦Need to ensure they could re-sell the house & gain their money back if you default on the loan ◦If the house does NOT appraise for the agreed upon sale price, the bank will NOT give you a mortgage, & you start over  Other tests depending on area & bank: ◦Water quality tests ◦Radon tests ◦Mold tests

Step 7: Closing When all the inspections & mortgage paperwork are done, you’ll close on the house Pay closing costs – origination fee, discount points, appraisal, credit report, title insurance, attorney’s fees, survey, prepaid tax items in escrow, realtor payment ◦Usually 3-5% of the mortgage price ◦Need a cashier’s check Can take a few hours Attorneys present if required by law (like in NJ) Sign TONS of paperwork Transfer the title and deed of the house to your name(s) Mortgage company usually also wants to see you have homeowners insurance set up before they grant the loan as well ◦Increases if you have: trampoline, pool, certain types of dogs, etc.

Step 8: Moving In House is technically yours at closing ◦Make sure seller is moved out ◦Get keys & locks replaced Start utilities in your name ◦Electricity ◦Water ◦TV ◦Internet & Phone Consider renting moving trucks from U-Haul or Home Depot