The Housing Expenditure

1. The Housing Expenditure

2. 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

3. 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. Objectives

4. 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

5. Advantages of Owning • Pride of ownership • American dream/norm • Reduced income taxes • deduct property taxes • deduct mortgage interest

6. Advantages of Owning (continued) • Build an equity • pay down the loan • price appreciation • Builds your credit rating • Hedge against inflation • Lifestyle flexibility • can express your individuality

7. 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

8. 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

9. Based on cash flow, renters appear to win After taxes and appreciation, owners usually win Renting vs. Owning Your Home • WHO PAYS MORE:

10. 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

11. 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

12. 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

13. Home Buying Process Step 4: Obtaining Financing • 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

14. 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

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

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

17. Type of Mortgages • 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

18. Type of Mortgages (continued) • 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

19. Type of Mortgages (continued) • 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

20. Home Buying Process Step 5: Closing the Purchase Transaction • 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 Closing Costs

21. The Main Elements of Buying a Home • Location • Down payment • Mortgage application • Points • Closing costs • TIPI (taxes, insurance, principal, interest) • Maintenance costs

22. 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

23. 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. Make Sure Security Deposit Is Returned

24. Listing agent Selling agent Buyer’s agent Dual agent Types of RealEstate Agents