purchasing a home copyright 2011© texas education agency. all rights reserved 1

Purchasing a Home

Copyright 2011© Texas Education Agency. All rights reserved 1

Terms to Know• Closing Costs – fees that are

due at the time the purchase is finalized.

• Down payment- required amount of cash payment to be made at time of purchase.

• Earnest Money –Money that the buyer puts down to show they are interested in the property.

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Terms to Know• Interest – Money that the lending

company charges the buyer for the loan.

• Mortgage – a home loan

• Principal- the original amount of the loan

• Homeowner’s Insurance – insurance that covers the structure and the contents

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Terms to Know• Equity –the difference between

the market value and the amount of money owed on the mortgage

• Escrow- money held by a third party until a specified time

• Amortization- the gradual elimination of the principal on the loan 4Copyright 2011© Texas Education Agency. All rights reserved

Advantages of Home Ownership

• Feeling of stability

• Independence – can change the dwelling to meet their needs

• Investment value – investing money in real estate



• Good Credit Record – helps one build their credit rating

• Tax Advantages – can deduct property taxes and interest on income tax 6Copyright 2011 © Texas Education Agency. All rights reserved


• Limited mobility – should be a long term investment – may cost one money if only stay a short time.

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Disadvantages of Home Ownership

• Unexpected Expenses – appliances may need to be bought or replaced

• Time spent on maintenance - responsible for all upkeep


Purchasing a New Home

• Development Homes – built by the developer and have a limited number of floor plans to choose from.



• Spec Homes – built by the builder on speculation . The home is built before the buyer is secured. Buyer can not choose the outside decor and some of the interior items

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• Stock Home Plans – Purchase a floor plan from a book and have a builder build it for you.

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• Custom-built Home – Architect draws up the plans according to your desires. You own the plans and no one else can use them without your permission.

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Advantages of a New Home

• Clean • In good condition • Modern Appliances • More than one

bathroom • Can choose the

interior/exterior material and designs

• Easier to finance • Low maintenance

costs 13


Disadvantages of New Home

• Possible cost of landscaping – most likely the back yard

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Advantages of Older Home

• More space for the money

• Greater individual character

• Often located in a well established neighborhood

• Landscaping is complete


Disadvantages of Older Home

• Possible cost of repairs – electrical wiring, plumbing and exterior and interior surfaces deteriorate with age

• Possible structural problems - cracks, little or no insulation, inefficient heating and cooling

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Disadvantages of Older Home

• May need a larger down payment

• May need to redecorate

• May need new landscaping as it has no curb appeal


Home Buying Process

1. Contact a Real Estate Agent or begin the search by oneself by using newspapers, internet, television or driving through neighborhoods.


Home Buying Process

• 2. Evaluate the homes one sees according to what you are looking for. Key rooms buyers look at today are the kitchen and master bathroom. 1


Home Buying Process

3. Make an offer by depositing earnest money. This money is held in trust until the deal is finalized and then applied toward the price. If one decides to back out, the earnest money may be refunded. 2

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Home Buying Process

4. Obtain financing – must qualify for a loan to cover the cost. The monthly payments should not be more than 28% of the person(s) gross monthly income. Buyers will have to pay for a credit check to be done. Debt payments for the buyer should be no more than 36% of monthly gross income.

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Types of Mortgages

• Conventional – pays a fixed interest rate for the length of the loan (15 to 30 years)

• Adjustable Rate Mortgage – interest rate changes depending on the current market rate. Every time the rate changes, the monthly payments change.

• Graduated Payment Mortgage – payments start out low and increase in the later years of the loan.

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Home Loans • FHA Loan – insured by the

Federal Housing Administration. FHA guarantees the lender that the debt will be paid.

• VA Loan – for people who have served in the armed services. Loans are guaranteed by the department of the Veteran Affairs. No down payment is required. 2


Home Loans

• Rural Housing Service – helps low to moderate income families buy homes in smaller communities

• First Time Buyer Program – Government program that helps people purchase their first home. Features low down payment and easier qualifying 2


Home Buying Process

5. Have the home inspected. – Termites – Radon – naturally occurring

gas that causes health problems

– Asbestos inspection – Lead testing – especially

homes constructed prior to 1970

– General structure such as roof, foundation, plumbing, heating and electrical systems


Home Buying Process

6. Obtain homeowners insurance – property insurance that insures the dwelling and contents against fires, windstorms and other hazards. – It also includes a

personal liability coverage that protects you in case someone injures themselves on your property.

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Home Buying Process

7. Down payment- must have money for a down payment – usually 5 to 25% of the purchase price. The standard amount today is 20%.

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Home Buying Process8. Closing the Deal

– Origination fee – fee to the lender to process the mortgage

– Cost of Survey – to determine the exact boundaries of the property

– Cost of appraisal – estimate the value of the property 28Copyright 2011 © Texas Education Agency. All rights reserved

Home Buying Process

– Title Search – investigate the court records to make sure the seller really owns the property

– Points – a one time fee charged by the lending company

– Attorney fee – to make sure the contract is legal and binding. 2

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Home Buying Process

• Other Costs to the Buyer – Moving costs – Utility

connections (having them turned on)

– Landscaping if not included in the contract with a new home

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Congratulations • When all paperwork

is signed and down payment and closing costs made, the buyer may take possession of the property.

• Your monthly payments will include payment of principal, interest, property taxes and insurance.

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