chapter 9: buying your home garman/forgue personal finance ninth edition ppt slide program prepared...

Chapter 9:Buying Your Home

Garman/Forgue

Personal FinanceNinth Edition

PPT slide program prepared by Amy Forgue and Ray Forgue.

Copyright ©Houghton Mifflin Company. All rights reserved. 9 - 2

Learning Objectives

1. Decide whether rented or owned housing is better both financially and personally.

2. Explain the up-front and monthly costs of buying a home.

3. Describe the steps in the home-buying process.


Learning Objectives

4. Distinguish among the conventional and alternative ways of financing a home and list the advantages and disadvantages of each.

5. Identify the important aspects of selling a home.


Introduction

• Mortgage Loan: Loan to purchase real estate in which the property itself serves as collateral.


Rented Housing

• Rent, deposit, and related expenses– Rent: Cost charged for using an apartment

or other housing space.

– Security Deposit: Ensures that you do not move without paying your rent.


Rented Housing

• Lease agreement and restrictions– Lease: Contract specifying both tenant and

landlord legal responsibilities.

– Periodic Tenancy: Lease agreement can be terminated by either party if they give proper notice in advance.


Rented Housing

• Lease agreement and restrictions– Tenancy for a Specific Time

– Subleasing


Owned Housing

• Single-Family Dwelling: Housing unit that is detached from other units.


Owned Housing

• Condominiums and cooperatives– Condominium (or Condo)– Homeowner’s Association– Homeowner’s fee

• Manufactured housing and mobile homes


Renting vs. Buying

• Who pays more: Renters or Owners?

• What does it cost to buy a home?

• Consider the tax consequences of buying your home.


Up-Front Costs

• Most up-front costs are due at the closing.– Closing costs

• Down Payment: Portion of the purchase price that is not borrowed.


Up-Front Costs

• Point (or Interest Point): Fee equal to 1 percent of the total mortgage loan amount.

• Attorney fees

• Title search and insurance

• Miscellaneous fees: Home inspection, appraisal fee, etc.


Monthly Costs

• Monthly costs include both principal and interest.

• Mortgage principal and interest.– PITI


Monthly Costs

• Loan-to-Value (or LTV) Ratio

• Mortgage Insurance– Private mortgage insurance (or PMI)– Federal Housing Administration (FHA)

• Department of Veterans Affairs (VA)

• Home warranty insurance


Misc. Fees

• Some fees are paid both up-front and then monthly– Taxes (T) and Insurance (I)– Escrow account

• Real estate property taxes

• Homeowner’s insurance


The Steps of Home Buying

• Get your finances in order.

• Prequalify for a mortgage.– Front-end ratio– Back-end ratio– Mortgage broker: Individual or company

that acts as an intermediary between borrowers and lenders.



• Search for a home online and in person.

• Agree to terms with the seller.

• Make an offer to buy.– Purchase offer (or offer to purchase):

Written offer to purchase real estate.



• Respond to a counteroffer.

• Negotiate and sign a purchase contract (or sales contract).



• Apply for a mortgage loan.– Good-faith estimate

– Mortgage lock-in

– Loan commitment (or loan preapproval)



• Prepare for the closing.

• Hire your own inspector.

• Hire an attorney.

• Sign your name on closing day.– Uniform Settlement Statement: Lists all of the

costs and fees to be paid at the closing.


Financing a Home

• Items to consider:– The mathematics of mortgage loans

• Lien• Foreclosure• Principal

– Amortization schedule

• The amount borrowed• The interest rate• Length and maturity of the loan


Financing a Home

• The conventional mortgage loan

• The adjustable-rate mortgage loan– Teaser Rate– Payment Caps– Negative Amortization


Financing a Home

• Alternative mortgage loans– Interest-only mortgage– Graduated-payment mortgage– Lender buy-down mortgage– Rollover (renegotiable-rate) mortgage– Growing-equity mortgage– Assumable mortgage– Land contract (contract for deed)– Reverse mortgage (or home-equity

conversion loan)


Selling a Home

• Should you list with a broker or sell a home yourself?– Fizbo: For sale by owner (FSBO)

• Selling carries its own costs– Brokers Commission– Prepayment Fee

• Be wary of seller financing!


The Top 3 Financial Missteps When Buying Housing

People slip up in when they do the following:

1. Fail to search for and negotiate for the lowest mortgage interest rate possible.

2. Fail to request that private mortgage insurance be canceled when their loan-to-value ratio drops to 80 percent.


The Top 3 Financial Missteps When Buying Housing

People slip up in when they do the following:

3. Pay off a mortgage early when carrying credit card debt or not saving regularly through a qualified tax-sheltered retirement plan.


Good Money Habits in Buying Your Home

• Read your leases and all other real estate contracts before signing.

• Save the funds for a down payment in a tax-sheltered Roth IRA account.



• Get your finances in order before shopping for a new home by reducing debt, budgeting better, and clearing up anything that keeps you from having a high credit score.



• Buy a home as soon as it fits your budget and lifestyle so you can take advantage of special income tax deductions and the likelihood of substantial price appreciation over time.



• Thoroughly explore mortgage loan sources and options to determine which one best fits your needs.



• If you make a down payment of less than 20 percent on a home, cancel private mortgage insurance as soon as the equity in your home pushes the loan-to-value ratio to 80 percent.

chapter 9: buying your home garman/forgue personal finance ninth edition ppt slide program prepared...

Documents

home inspection

steps of home buyingapply

steps of home buyingrespond

steps of home buyingsearch

purchase offer

purchase contract

total mortgage loan

mortgage principal