The Housing Expenditure

Objectives

Discuss the options available for rented and owned housing and whether renters or owners pay more for housing.

Determine how much buyers can afford for housing.

Discuss the various mechanisms for financing a home.

Objectives

Identify the numerous costs of buying a home, including principle, interest, and closing costs.

List and describe the steps in the home-buying process.

Identify some important concerns in the process of selling a home.

Renting Your Residence

Advantages Mobility Fewer responsibilities Lower costs initially More amenities

Disadvantages Few financial benefits Restricted lifestyle Cost of renting - deposits Legal concerns of a lease

Advantages of Owning

Pride of ownership American dream/norm

Reduced income taxes deduct property taxes deduct mortgage interest

Advantages of Owning

Build an equity pay down the loan price appreciation

Builds your credit rating Hedge against inflation Lifestyle flexibility

can express your individuality

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Disadvantages of Owning

Financial risk need down payment home prices could drop

Limited mobility can take time to sell

Higher living costs maintenance repairs & improvements utilities & insurance real estate taxes

Housing Options for Home Buyers

Single-family dwelling tract housing built on speculation by builder built to your specifications previously lived in home manufactured home mobile home

Renting vs. Owning Your Home

Based on cash flow, renters appear to win

After taxes and appreciation, owners usually win

WHO PAYS MORE:

Home Buying Process Step 1: Determine Ownership Needs

How much you can afford down payment loan amount size and quality handyman’s special sweat equity

Home Buying Process Step 2: Finding and Evaluating a Property to Purchase

Select a location Zoning laws Covenants, codes and restrictions Using a real estate agent Property appraisal Conducting a home inspection

9-15

Home Buying Process Step 3: Pricing the Property

Determining the price to offer Negotiating the purchase price

seller’s or buyer’s market earnest money

Contingency clauses home passes

structural inspection able to get a loan

Determine the amount of down payment mortgage insurance

Qualifying for a mortgage can be pre-qualified based on income, assets,

debts, credit history and length of loan purpose of “points” (prepaid interest)

The home loan application process fixed or adjustable rate mortgage locking in an interest rate - search Web

Home Buying Process Step 4: Obtaining Financing

Qualifying for a Mortgage

Amount available for down payment Amount of income Amount of other debts Credit rating Current mortgage rates Length of loan desired

Estimating Mortgage Loan Payments for Principal and Interest

Estimating Mortgage Loan Payments for Principal and Interest(Monthly Payment per $1,000 Borrowed)

  Payment Period (Years)

InterestRate (5)

15 20 25 30

4.5 $7.6499 $6.3265 $5.5583 $5.0669

5.0 7.9079 6.5996 5.8459 5.3682

5.5 8.1708 6.8789 6.1409 5.6779

6.0 8.4386 7.1643 6.4430 5.9955

6.5 8.7111 7.4557 6.7521 6.3207

7.0 8.9883 7.7530 7.0678 6.6530

7.5 9.2701 8.0559 7.3899 6.9921

8.0 9.5565 8.3644 7.7182 7.3376

8.5 9.8474 8.6782 8.0523 7.6891

9.0 10.1427 8.9973 8.3920 8.0462

9.5 10.4422 9.3213 8.7370 8.4085

10.0 10.7461 9.6502 9.0870 8.7757

Note: To use this table to calculate a monthly mortgage payment, divide the amount borrowed by 1,000 and multiply by the appropriate figure in the table where the interest rate and the time period for the loan intersect. For example, a $150,000 loan for 30 years at 9 percent would require a payment of $1,206.93 [($150.000/1,000) x 8.0462]; over 15 years it would require a payment of $1,521.41.

Effect of Down Payment

Effect of Down Payment Size on Monthly Payment for a $150,000 Home(7 Percent Mortgage Loan for 30 Years)

DownPayment

AmountOf Loan

MonthlyPayment

$5,000 $145,000 $964.69

10,000 140,000 931.42

15,000 135,000 898.16

20,000 130,000 864.89

25,000 125,000 831.63

Conventional fixed rate, amortized 5, 10 or 20 percent down 15, 20 or 30 years of fixed payments

Government guaranteed Veterans Administration Federal Housing Administration

Adjustable rate mortgages varies with the prime rate but has a rate cap

Type of Mortgages

Type of Mortgages

Graduated payment payments start lower and go up for persons whose income will increase

Balloon fixed monthly payments plus one large

payment, usually after 3, 5 or 7 years Growing equity

payment increases to allow loan to be paid off more quickly

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Type of Mortgages Shared appreciation

borrower agrees to share appreciated value of the home with the lender

Home equity loans a second mortgage home is collateral and interest may be tax

deductible Reverse

a loan based on the home equity Refinancing

(continued)

Title insurance and search fee Attorney’s and appraisers fees Property survey Recording fees; transfer taxes Credit report Termite inspection Lender’s origination fee Tax and insurance reserves Pre-paid interest Real estate commission

Home Buying Process Step 5: Closing the Purchase Transaction

Closing Costs

The Main Elements of Buying a Home

Location Down payment Mortgage application Points Closing costs TIPI (taxes, insurance, principal, interest) Maintenance costs

Selling Your Home

Preparing your home Determining the asking price

Appraiser Realtor

For sale by owner or use a broker Listing with a real estate agent

Make Sure Security Deposit Is Returned

1. List damages/defects before moving in unit. 2. Maintain unit and promptly notify landlord of

any problems. 3. Give proper written notice of intent to move. 4. List all damages/defects after moving out of

unit. 5. Use certified mail to request return of

security deposit. 6. Use small claims court, if necessary.

Types of RealEstate Agents

Listing agent

Selling agent

Buyer’s agent

Dual agent