Unit 10: Acquiring a Homenwtech.edu/alvacc/wp-content/uploads/2019/10/Unit-10-Frascht.pdf ·...

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Transcript of Unit 10: Acquiring a Homenwtech.edu/alvacc/wp-content/uploads/2019/10/Unit-10-Frascht.pdf ·...

  • Unit10:AcquiringaHome

    PersonalFinancialLiteracy

  • Objectives

    •  Comparetheadvantagesanddisadvantagesofrentingandowningahome.

    •  Definetermsrelatedtofinancingahouse.•  Distinguishamongtypesofmortgages•  Arrangeinorderthestepsinbuyingahome.•  Stateguidelinesforestimatingabudgetforhousing.

  • AdvantagesofRenting

    •  Greaterflexibilityinmoving •  Notresponsibleforhomerepairsorimprovements

    •  Nodownpayment •  Nohugemortgage •  Nopropertytaxes

  • AdvantagesofRenting-Continued

    •  Noworryaboutpropertyvalues •  Limitedresponsibilities •  Predictablecosts

  • AdvantagesofOwning

    •  Costmaybelessoverperiodoftime•  Hasmorecontrolofproperty•  Maybuildupequity•  Taxadvantages:interestandpropertytaxesaredeductible

    •  Privacy

  • DisadvantagesofOwning

    •  Hugeresponsibility•  Downpayment•  Mustbeapprovedforfinancing•  Mustpayforhomemaintenanceandrepairs•  Coststendtobehigher•  Hardertomove•  Higherinsurancepremiums•  Propertytax

  • DisadvantagesofRenting

    •  Securitydeposit•  Notaxdeductions•  Rentersinsuranceneededtoprotectbelongings•  Nosenseofownership•  Unabletomakepermanentchangestoresidence•  Oftenaren'tallowedtohavepets •  Lackofprivacy•  Noequity

  • Mortgage

    •  Financialandlegalagreementbetweenborrowerandlender

    •  Lendergivesloaninexchangeforlienonproperty

    •  Ifborrowercan’tmakepayments,lendercantotakehouse

  • ChoosingtheRightMortgage

    •  Howlongdoyouexpecttohavemortgage?•Whatkindofmonthlypaymentcanyouafford?

    •Willingtotakeariskwithfluctuatinginterestrate?

    •MemberoftheArmedForces?

  • TypesofMortgages

    •  Fixedratemortgages– Notinsuredorguaranteed– LendermayrequirePrivateMortgageInsurance(PMI)untilaborrowerhas20%equity– Fixedinterestrateforlifeofloan

  • ARMs

    •  Adjustableratemortgages– Rateincreasesordecreasesaccordingtoeconomicindicators– Maystartwithlowerinterestratethanconventionalloan– Interestratecanrise

  • BalloonMortgages

    •  30-yearamortization•  Requiresbalanceofmortgageatendofmuchshorterterm

  • SpecialLoans

    •  Insuredorguaranteedbyfederalgovernment•  Lowerinterestrates•  Lowdownpayment– VA(VeteransAdministration)forveteransandactivedutymilitarypersonnel

    – FHA(FederalHousingAdministration)basedonincome

  • ReverseMortgages

    •  Usuallyretireeswithalotofequity•  Lender“purchases”housebymakingpaymentstoseller•  Attimeofdeath,lenderownshome•  Verycostly,highfees

  • TypesofHousing

    •  Single•  Condominium•  Townhouse•  Duplex

  • WhatareYouLookingFor?

    •  Location•  Size•  Type•  Amenities•  Needvs.optional•  Budget•  Buyer’smarketvs.seller’smarket

  • Pre-Approval

    •  Tellsyouexactlywhatlenderwillloan•  Onlyanestimate•  Morereliableindicatorofwhatyoucanaffordthanprequalifying

    •  Shoparound

  • PurchaseAgreement

    •  Describesproperty,includinglocationandfurnishingsorequipment

    •  Conditionsandtermsofsale•  Bothbuyerandsellersign•  Buyerdepositsearnestmoney

  • AppraisalandTitleSearch

    •  Appraisalassessesvalueofproperty•  Includessurveyofpropertylines•  Titlesearch– Titlegiveshistoryofproperty;warnsofpotentialproblems

  • CostsRelatedtoClosing•Downpayment•Originationfeeforprocessingloanapplication•Titlesearch•Surveyfees•Titleinsurance•Appraisals•Creditreports•Filingorrecordingfee•Inspections(paidatinspection,notclosing)

  • HousingExpenseRatio

    •  Borrowerscanaffordupto28%onhousingpayments(includingpropertytaxesandhomeownersinsurance)

    •  Basedongrossincome

  • DebtRatioFormula

    •  Debtpayments,includinghousingpayments,shouldnotexceed36%.

  • UnitReview1.  Distinguishbetweenadvantagesand

    disadvantagesofrentingahome.2.  Discussthecostsandbenefitsofowninga

    home.3.  Explainwhatamortgageis.4.  Howisamortgagepaymentcalculated?5.  Whatarethetypesofquestionsyoushould

    askyourselfbeforeshoppingforamortgage?

  • UnitReview-Continued6.  Whatmortgagetermwouldallowyoutobuildequity

    inahomefaster?7.  Compareandcontrastfixedratemortgageswith

    adjustableratemortgages.8.  Ifahomebuyerwithafixedratemortgageof

    $100,000wantedtoavoidpayingPMI,howmuchwouldheorsheneedforadownpayment?

    9.  Discussspecialmortgageloansandtheagenciesaffiliatedwiththem.

    10. Discusstypesofhousingahomebuyermightconsider.

  • UnitReview-Continued11. Distinguishbetweenprequalifyingand

    preapprovalforhomefinancing.12. Whataretheadvantagesofusingarealtorto

    buyahome?13. Discusswhatoccursduringtheapprovalprocess

    ofbuyingahome.14. Listatleastfiveofthefeesassociatedwitha

    closing.

    15. Distinguishbetweenthehousingexpenseratioandthedebtratioformulaestimatingahousingbudget.