buying a home. renting vs. buying renting: ◦you rent the house from a landlord who owns the house...
TRANSCRIPT
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Buying a Home
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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
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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
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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
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Paying for a Home Get a mortgage
Usually 15-30 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
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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 15-30 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
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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)
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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
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Step 1: Determine Housing Needs
Plan for the future & lifestyle
# Bedrooms?
# Bathrooms?
Garage?
Yard?
“Open Concept” ?
Type of neighborhood?
Distance from work?
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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
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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.
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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
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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
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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
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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.
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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