buying and selling a home
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Section 7.3. Buying and Selling a Home. The Home Buying Process. Buying a home will probably be the most expensive purchase you ever make. - PowerPoint PPT PresentationTRANSCRIPT
Buying and Selling a Home
Section 7.3
The Home Buying Process
Buying a home will probably be the most expensive purchase you ever make.
You will need to determine your home ownership needs, find and evaluate a property to purchase, price the property, obtain financing, and close the transaction.
Step 1: Determine Your Home Ownership Needs
Consider the benefits and drawbacks of buying a home.
Consider the types of homes that are available.
Consider how much you are able to spend.
Owning a residence
Benefits Stability and
permanence Decorating freedom Financial benefits $ Value of home
usually rises Once paid off, you
don’t have to make any more payments.
Drawbacks Saving $ for down
payment is hard Property value may
decline Limited mobility Home maintenance
can be expensive
What are two benefits and two disadvantages of
owning a residence?
Types of Housing
Single Family
Dwellings
Sits on a separate lot
not attached to any other building
Multiunit Dwellings
Duplexes and
townhouses
Condominium
Groups of apartments
or townhouses that people own and not
rent
Cooperative
Housing
Pay monthly
fee which covers rent
and operating expenses
Prefabricated Homes
Houses made and partially
assembled at a factory.
Cheaper than
building a home on
site.
Mobile Homes
Rarely “mobile”.
Assembled at factories and moved
to home site.
What are 6 types of housing you may
own?
Affordability and Your NeedsPRICE AND DOWN PAYMENT
How much can you spend?
Look at your income Look at your expenses Do you have anything
saved for a down payment?
Talk to a loan officer at a bank to get approved for a loan.
SIZE AND QUALITY How big do you need
your home? What quality are you
willing to settle for?
TRADING UP Be willing to buy small and
“trade up” as you make more money and become more financially stable.
Step 2: Find and Evaluate a Property to Purchase
Select a location
Hire a real estate agent
Conduct a home inspection: you may
be able to get the house cheaper
Step 3: Price the Property
Determine the Price of the
HomeHow long has the home been on the
market?
What have similar homes sold for?
Do the owners need to sell in a hurry?
How well does the home meet your
needs?
Negotiate the Purchase Price
Offer what you are willing to pay
Seller may accept or reject
Seller may make counter offer
Seller and buyer may agree on price
Buyer may pay seller a portion of price
called earnest money.
Earnest money shows the offer is
serious. Money sits in an escrow account where
the $ is held and then applied to
the down payment.
What questions should you ask yourself when
determining how much to offer for a house?What is an escrow
account?What is a counteroffer?
Step 4: Obtain Financing Determine the amount of
down payment. Usually 20% of the purchase price.
If you do not have the 20% you will have to obtain PRIVATE MORTGAGE INSURANCE (PMI).
When the buyer has paid between 20-25% of the purchase price, the PMI insurance can be dropped.
PMI is a policy that protects the lender in
case the buyer cannot make
payments or cannot make them on time. You can usually elect to pay the cost of the insurance up front or
spread it over payments.
What are two benefits and two disadvantages of
owning a residence?
Step 4: Obtain Financing A mortgage is a long-term loan
extended to someone who buys property. The buyer will borrow money and will need to pay the lender payments (including interest).
Mortgages are usually 15, 20, or 30 years.
If you fail to make the payments the lender can foreclose or take possession of your home.
What is a mortgage?
Step 4: Obtain Financing
To take out a mortgage, you need to meet certain criteria.
Most lenders charge between $100 and $300 to apply for a mortgage.
The monthly payments on a mortgage are set at a level that allows amortization of the loan. Amortization is the reduction of a loan balance through payments made over time.
Obtaining a new mortgage to replace the existing one. If interest rates fall (from 8 to 4%) you may be eligible
to refinance to get lower mortgage payments.
A loan based on the difference between the value of the home and the amount the borrower owes on the
mortgage. (a 2nd mortgage)
Interest rate changes throughout the life of the loan according to economic factors. Your payment may go
up or down.
Mortgage with a fixed interest rate and a fixed schedule of payments. Payments are always the same
throughout the life of the loan.
Types of MortgagesFixed-Rate Mortgage
Adjustable-Rate
Mortgage
Home Equity Loans
Refinancing
What are 4 types of mortgages?
Step 5: Close the Transaction The final step is closing, which is a
meeting of the buyer, seller, and the lender of the funds (or a representative such as a lawyer).
At closing, documents are signed, last minute details are settled, and money is paid.
The buyer and seller must also pay closing costs.
Closing Costs for Buyer and SellerItem Buyer SellerTitle search fee $50-$100 $300-$900Title insurance $300-$900 $50-$1000Attorney’s fee $50-$1000 $100-$500Property survey ---- ----Appraisal fee $100-$350 ----Recording fees $30-$65 $35-$65Credit report $35-$75 -----Termite inspection $100-$250 -----Lender’s origination fee
1-5% of the loan -----
Real estate agent’s commission
----- 5-7% of purchase price
Insurance, taxes, and interest
Varies ----
What are closing costs?
Selling a Home Prepare your home for selling:
The better it looks, the faster it will sell.
Determine your selling price. An appraisal (an estimate done by a professional) will tell you what the house is worth.
Choose a real estate agent. They will attract buyers and show your home but are paid commission on your sale.
Sell it yourself.
Activity: Find a home On your index card is the future
occupation that you want to have. I have given you the average starting
salary for that occupation. GENERALLY, you can afford a house 2 ½
times your average salary. Search the internet for a house within your
price range in the area you want to live. Print out your house and calculate how
much your down payment would need to be (20%).