evaluating housing alternatives section 34.1. understanding business and personal law evaluating...

Evaluating Housing Alternatives Evaluating Housing Alternatives Section 34.1Section 34.1

Understanding Business and Personal Law

Evaluating Housing Evaluating Housing Alternatives Alternatives

Section 34.1Section 34.1

Buying a Home

Section 34.1Section 34.1Evaluating Housing Alternatives Evaluating Housing Alternatives

Section 34.2Section 34.2The Home Buying Process The Home Buying Process

3434ChapterChapter Buying a HomeBuying a Home




Buying a Home

What You’ll Learn

How to compare the advantages and How to compare the advantages and disadvantages of buying a home (p. 730)disadvantages of buying a home (p. 730)

How to determine the amount of down How to determine the amount of down payment you will need and the payment you will need and the approximate amount you can borrow to approximate amount you can borrow to buy a home (p. 730)buy a home (p. 730)




Buying a Home

What You’ll Learn

How to describe various types of How to describe various types of home ownership (p. 733)home ownership (p. 733)




Buying a Home

Why It’s Important

Being able to evaluate housing alternatives Being able to evaluate housing alternatives will help you to decide whether to purchase a will help you to decide whether to purchase a home.home.




Buying a Home

Legal Terms

mortgage (p. 730)mortgage (p. 730)equity (p. 730)equity (p. 730)debt ratio (p. 731)debt ratio (p. 731)cooperative (p. 735)cooperative (p. 735)condominium (p. 735)condominium (p. 735)




Buying a Home

Deciding to Buy a Home Section OutlineSection Outline

Advantages to Home BuyingDisadvantages to Home BuyingHow Much Can You Afford?




Buying a Home

Types of Home Ownership Single- and Multifamily HomesMobile HomesCooperativesCondominiums

Section OutlineSection Outline




Buying a Home

Pre-Learning Question Pre-Learning Question

What do you do before deciding to buy a home?




Buying a Home

Deciding to Buy a Home Deciding to Buy a Home

Buying a home may be the most Buying a home may be the most important purchase you will ever important purchase you will ever make. make.




Buying a Home


You will need to:You will need to:

weigh the advantages and weigh the advantages and disadvantagesdisadvantagesconsider how much you can affordconsider how much you can afforddetermine the type of house will determine the type of house will best fit your needs best fit your needs




Buying a Home


Most people take out a mortgage to Most people take out a mortgage to help with the costs. help with the costs.

A A mortgagemortgage is a written instrument by is a written instrument by which the buyer (the mortgagor) which the buyer (the mortgagor) pledges real property to the lender pledges real property to the lender (the mortgagee) as security for a loan.(the mortgagee) as security for a loan.




Buying a Home

Advantages to Home Buying Advantages to Home Buying

There are several advantages to There are several advantages to buying a home. buying a home.

One is the ability to do with it as you One is the ability to do with it as you wish without having to answer to wish without having to answer to another owner.another owner.




Buying a Home


Another advantage is the increase in Another advantage is the increase in equityequity, or the difference between the , or the difference between the fair market value and the mortgage, in fair market value and the mortgage, in the property. Equity increases as you the property. Equity increases as you pay off the mortgage and as the pay off the mortgage and as the property increases in value.property increases in value.




Buying a Home


A third advantage is that you can A third advantage is that you can deduct property taxes and interest deduct property taxes and interest paid on your mortgage from your paid on your mortgage from your income tax return.income tax return.




Buying a Home

Disadvantages to Home Buying Disadvantages to Home Buying

There are some disadvantages.There are some disadvantages.

the inconvenience and cost of the inconvenience and cost of upkeepupkeepthe inability to move easily and the inability to move easily and quickly if necessary quickly if necessary




Buying a Home

How Much Can You Afford? How Much Can You Afford?

To determine how much you can To determine how much you can afford to pay for a house, you must afford to pay for a house, you must consider: consider:

the amount of down paymentthe amount of down paymentthe amount you can borrow based the amount you can borrow based on your income and expenses on your income and expenses




Buying a Home

Down Payment Down Payment

Down-payment requirements range Down-payment requirements range from zero to 30 percent of the from zero to 30 percent of the purchase price. purchase price.




Buying a Home

34.134.1

Down PaymentDown Payment

0 percent

3 percent

3 to 5

percent

10 to 30

percent

Veteran’s Administration (VA) loans

(for qualified veterans to buy a house up to $203,000)

Mortgages backed by federal agencies, such as Fannie

Mae and Freddy Mac

FHA loans (loans insured by the Federal Housing

Administration)

Conventional bank loans

Type of Loan Down Payment




Buying a Home

Loan Qualifications Loan Qualifications

A lender will judge your ability to repay A lender will judge your ability to repay your loan based on your credit report your loan based on your credit report and your and your debt ratiodebt ratio, or the amount of , or the amount of your monthly payments compared to your monthly payments compared to your monthly income.your monthly income.




Buying a Home


Your mortgage payment, including Your mortgage payment, including taxes and insurance, should not taxes and insurance, should not exceed 28 percent of your monthly exceed 28 percent of your monthly gross income.gross income.




Buying a Home


Total monthly debt payments Total monthly debt payments (including your new mortgage, credit (including your new mortgage, credit cards, car payments, and so on) cards, car payments, and so on) should not exceed 36 percent of your should not exceed 36 percent of your income.income.




Buying a Home

The Elements of Buying a House The Elements of Buying a House

It’s important to consider the following It’s important to consider the following issues when making a home issues when making a home purchase.purchase.

locationlocationdown paymentdown paymentmortgage rates and points mortgage rates and points




Buying a Home

The Elements of Buying a House The Elements of Buying a House

closing costsclosing costsmonthly paymentsmonthly paymentsmaintenance costs maintenance costs




Buying a Home

Pre-Learning Question Pre-Learning Question

What are some different types of homes a person can own?




Buying a Home

You have many choices in selecting a You have many choices in selecting a home, depending on how much you home, depending on how much you can afford and the desired size of the can afford and the desired size of the house and its location. house and its location.

Types of Home Ownership Types of Home Ownership




Buying a Home

Different types include Different types include

Types of Home Ownership Types of Home Ownership

single-family homessingle-family homesmultifamily homesmultifamily homesmobile homesmobile homescooperativescooperativescondominiumscondominiums




Buying a Home

Single-family homes are the most Single-family homes are the most popular type of home.popular type of home.They offer privacy and more overall They offer privacy and more overall usable space than other types of usable space than other types of housing. housing.

Single- and Multifamily Homes Single- and Multifamily Homes




Buying a Home

Multifamily dwellings are less Multifamily dwellings are less expensive to own because of the expensive to own because of the income from nonowner-occupied income from nonowner-occupied units.units.The owner’s monthly mortgage and The owner’s monthly mortgage and tax payments can often come from tax payments can often come from rental income.rental income.

Single- and Multifamily Homes Single- and Multifamily Homes




Buying a Home

Mobile homes are also known as Mobile homes are also known as manufactured homes.manufactured homes.They are less expensive to They are less expensive to purchase and to keep up.purchase and to keep up.They usually can be sold quickly They usually can be sold quickly and easily.and easily.

Mobile Homes Mobile Homes




Buying a Home

A A cooperativecooperative (co-op) is a form of (co-op) is a form of home ownership in which buyers home ownership in which buyers purchase shares in the corporation purchase shares in the corporation that owns an apartment building and that owns an apartment building and holds the mortgage on it.holds the mortgage on it.

Cooperatives Cooperatives




Buying a Home

Shareholders have a proprietary lease Shareholders have a proprietary lease that gives them the right to the that gives them the right to the individual units.individual units.

Cooperatives Cooperatives




Buying a Home

In a In a condominiumcondominium (often called a (often called a condo), each owner has an absolute condo), each owner has an absolute individual interest in an apartment unit individual interest in an apartment unit and an undivided common interest in and an undivided common interest in the common areas of the condo the common areas of the condo project.project.

Condominiums Condominiums




Buying a Home

Match the type of home with its description.

1. Multi-family home2. Cooperative3. Condominium4. Mobile home




Buying a Home

a) A situation in which each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas.




Buying a Home

b) A situation in which buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it.




Buying a Home

c) Also known as a manufactured home




Buying a Home

d) Less expensive to own that a single-family home because of the income from nonowner-occupied units.




Buying a Home

ANSWERANSWER

1. Multi-family home (d)2. Cooperative (b)3. Condominium (a)4. Mobile home (c)




Buying a Home

Reviewing What You Learned

1. What are the advantages and disadvantages of buying a home?

Section 34.1 Assessment




Buying a Home


Advantages—the ability to do with it as you wish; equity build up; ability to deduct property taxes and interest paid on your mortgage from your income tax return.


Answer




Buying a Home


Disadvantages—the inconvenience and cost of upkeep and the inability to move easily and quickly.


Answer




Buying a Home


2. Is it possible to buy a home with no down payment? Explain your answer.





Buying a Home


Yes. Qualified veterans can obtain a VA (Veteran’s Administration) loan to buy a house up to $203,000 with no down payment.


Answer




Buying a Home


3. Describe the five types of home ownership.





Buying a Home


(1) Single-family—offer the most privacy and usually have more usable space than other types of house. (2) Multi-family—are less expensive to own because of the income from nonowner-occupied units.


Answer




Buying a Home


(3) Mobile homes—also known as manufactured homes, are less expensive to purchase than ordinary houses and cost less to keep up. They can usually be sold quickly and easily.


Answer




Buying a Home


(4) Cooperatives—buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it.


Answer




Buying a Home


(5) Condominiums—each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas of the condo project.


Answer




Buying a Home


Critical Thinking ActivityLender Criteria If you were planning to borrow money to buy a home, why would your employment history be important to a lender?




Buying a Home


Critical Thinking Activity AnswerLender Criteria Answers will vary, but should include that a lender will want to judge your ability to repay your loan based on different criteria such as your employment history, credit report, and your debt ratio.




Buying a Home


Legal Skills in ActionCalculating the Down Payment Using the following scenarios, determine the down payment required on a house that costs $203,000. (Assume all other costs are already included.)




Buying a Home


Legal Skills in ActionCalculating the Down Payment • VA loan to a qualified veteran• Fannie Mae loan: 3 percent• FHA loan: 4.5 percent• Conventional loan: 15 percent




Buying a Home


Legal Skills in Action AnswerCalculating the Down Payment • VA loan—no down payment• 3 percent loan—$203,000 x .03 = $6,090• 4.5 percent loan—$203,000 x .045 = $9,135• 15 percent loan—$203,000 x .15 = $30,450

Evaluating Housing Alternatives Evaluating Housing Alternatives End of Section 34.1End of Section 34.1

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