lesson three buying a home overheads

lesson three buying a home overheads

the home-buying process phase 1: determine home ownership needs What type of housing should I (we) buy? How much can I (we) afford to spend? phase 2: locate and evaluate a home Where do I (we) want to live? What aspects of the home need improvement? phase 3: price the property What is an appropriate market price? How much negotiation movement exists? phase 4: obtain financing How much down payment is available? What are current mortgage rates? Can I (we) qualify for a mortgage? What type of mortgage should be selected? phase 5: close the purchase transaction What is the closing date? What funds and documents will be needed for the closing? Is everything understood before the final signing? www.practicalmoneyskills.com buying a home overhead 3-A

qualifying for a mortgage Determine the estimated value of the home you would like to purchase. Obtain funds for a down payment from savings or through gifts or loans from family members. Reduce other debts or improve your credit record, if necessary. Compare fees, services, and mortgage rates for different lenders. Prepare the mortgage application. your mortgage acceptance will be based on your credit record. The amount of the mortgage for which you qualify will be influenced by: Your income The amount available for a down payment Current mortgage rates www.practicalmoneyskills.com buying a home overhead 3-B

types of mortgages fixed-rate, fixed-payment mortgages: Conventional 30-year mortgage Conventional 15- or 20-year mortgage FHA/VA fixed-rate mortgage Balloon loan (3-10 year terms) adjustable-rate, variable payments: Adjustable-rate mortgage (ARM) Graduated-payment mortgage Growing-equity mortgage other financing methods: Buy-downs Shared-appreciation mortgage (SAM) Second-mortgage (home equity loan) Reverse mortgage Refinancing www.practicalmoneyskills.com buying a home overhead 3-C

closing costs at the real estate transaction settlement, commonly referred to as the closing, the following costs are typically incurred by a person buying a home: Title search fee ($50-$150) Title insurance ($100-$600) Attorney s fee ($50-$700) Appraisal fee ($100-$300) Recording fees and transfer taxes ($15-$30) Credit report ($25-$75) Termite inspection ($50-$150) Lender s origination fee (1-3% of loan amount) Reserves for home insurance and property taxes (amount varies) Interest paid in advance (if applicable) www.practicalmoneyskills.com buying a home overhead 3-D

selling your home before putting your home on the market, make any preparations that could increase appeal and market value Make necessary repairs Paint exterior and interior areas Update various features (such as new carpeting or plumbing fixtures) determine the selling price, based on: An appraisal to estimate current market value; The location, features, and age of the home; and Current mortgage rates and market demand in your area. decide if you will do a "sale by owner" Advertise your home in various media (e.g., newspapers, Internet, flyers) Be ready to meet and show your home to prospective buyers Make use of the services of a lawyer and/or title company for the legal aspects consider using the services of a real estate agent Interview two or more agents to compare their services and experience Expect the agent to provide a marketing plan and to handle the financial and legal aspects of the sale Communicate with the agent on a regular basis regarding the selling price and prospective buyers www.practicalmoneyskills.com buying a home overhead 3-E

lesson three buying a home student activities

name: date: should they rent or buy? directions For each of the following situations, circle RENT, BUY, or DEPENDS to indicate your opinion related to this person s housing decision. Also, give reasons for your response. 1. Marla, age 22, plans to work full time while completing her college degree in a nearby city. 2. Bill, age 44, travels out of town frequently for his sales job. His company may transfer him to another sales territory within a year or two. 3. Craig, age 32, recently completed his master s degree in business while working at the same company for the past six years. He has also been able to save nearly $8,000 over this time period. 4. Jess, age 19, has just taken her first job as a sales representative trainee for a computer software company. 5. Barb and Frank, ages 54 and 57, are planning to retire within the next few years. www.practicalmoneyskills.com buying a home activity 3-1

should they rent or buy? answer key directions For each of the following situations, circle RENT, BUY, or DEPENDS to indicate your opinion related to this person s housing decision. Also, give reasons for your response. 1. Marla, age 22, plans to work full time while completing her college degree in a nearby city. 2. Bill, age 44, travels out of town frequently for his sales job. His company may transfer him to another sales territory within a year or two. 3. Craig, age 32, recently completed his master s degree in business while working at the same company for the past six years. He has also been able to save nearly $8,000 over this time period. 4. Jess, age 19, has just taken her first job as a sales representative trainee for a computer software company. 5. Barb and Frank, ages 54 and 57, are planning to retire within the next few years. www.practicalmoneyskills.com buying a home activity answers 3-1 key

name: date: conducting a home inspection Based on your personal observations of homes, interviews with homeowners and real estate agents, and Internet research, list several items to consider when conducting an inspection before deciding to buy a home. exterior facilities: 1. 2. 3. exterior construction: 1. 2. 3. interior construction: 1. 2. 3. interior design: 1. 2. 3. www.practicalmoneyskills.com buying a home activity 3-2

name: date: shopping for a mortgage Use the following form to compare two or more sources of home mortgages: Type of mortgage: (conventional, adjustable rate) Length: (# years) Mortgage amount: Financial Institution: (address, phone) Contact person: Web site: Application fee: Credit report: Appraisal fee: Loan origination fee: Interest rate: Monthly payment: Points: Other fees, charges (prepaid interest): Other information: www.practicalmoneyskills.com buying a home activity 3-3

name: date: computing mortgage payments Using the following mortgage payment factors, calculate the monthly mortgage payment for the following situations. mortgage payment factors (principal and interest factors per $1,000 of loan amount) Term Rate 30 Years 25 Years 20 Years 15 Years 6.0% $6.00 $6.44 $7.16 $8.43 6.5 6.32 6.67 7.45 8.71 7.0 6.65 7.06 7.75 8.98 7.5 6.99 7.39 8.06 9.27 8.0 7.34 7.72 8.36 9.56 8.5 7.69 8.05 8.68 9.85 9.0 8.05 8.39 9.00 10.14 9.5 8.41 8.74 9.32 10.44 10.0 8.78 9.09 9.65 10.75 10.5 9.15 9.44 9.98 11.05 11.0 9.52 9.80 10.32 11.37 11.5 9.90 10.16 10.66 11.68 12.0 10.29 10.53 11.01 12.00 12.5 10.67 10.90 11.36 12.33 13.0 11.06 11.28 11.72 12.65 13.5 11.45 11.66 12.07 12.98 14.0 11.85 12.04 12.44 13.32 14.5 12.25 12.42 12.80 13.66 15.0 12.64 12.81 13.17 14.00 Example: A 30-year mortgage at 9 percent for $80,000. Calculations: $8.05 from table times 80 (for $80,000) equals $644 1. A 15-year mortgage at 8.5 percent for $75,000. 2. A 30-year mortgage at 8 percent for $95,000. 3. A 20-year mortgage at 7 percent for $155,000. 4. A 30-year mortgage at 7.5 percent for $60,000. www.practicalmoneyskills.com buying a home activity 3-4

computing mortgage payments answer key Using the following mortgage payment factors, calculate the monthly mortgage payment for the following situations. mortgage payment factors (principal and interest factors per $1,000 of loan amount) Term Rate 30 Years 25 Years 20 Years 15 Years 6.0% $6.00 $6.44 $7.16 $8.43 6.5 6.32 6.67 7.45 8.71 7.0 6.65 7.06 7.75 8.98 7.5 6.99 7.39 8.06 9.27 8.0 7.34 7.72 8.36 9.56 8.5 7.69 8.05 8.68 9.85 9.0 8.05 8.39 9.00 10.14 9.5 8.41 8.74 9.32 10.44 10.0 8.78 9.09 9.65 10.75 10.5 9.15 9.44 9.98 11.05 11.0 9.52 9.80 10.32 11.37 11.5 9.90 10.16 10.66 11.68 12.0 10.29 10.53 11.01 12.00 12.5 10.67 10.90 11.36 12.33 13.0 11.06 11.28 11.72 12.65 13.5 11.45 11.66 12.07 12.98 14.0 11.85 12.04 12.44 13.32 14.5 12.25 12.42 12.80 13.66 15.0 12.64 12.81 13.17 14.00 Example: A 30-year mortgage at 9 percent for $80,000. Calculations: $8.05 from table times 80 (for $80,000) equals $644 1. A 15-year mortgage at 8.5 percent for $75,000. $9.85 x 75 = $738.75 2. A 30-year mortgage at 8 percent for $95,000. $7.34 x 95 = $697.30 3. A 20-year mortgage at 7 percent for $155,000. $7.75 x 155 = $1,201.25 4. A 30-year mortgage at 7.5 percent for $60,000. $6.99 x 60 = $419.40 www.practicalmoneyskills.com buying a home activity answers 3-4 key

name: date: lesson three quiz: buying a home true-false 1. A main advantage of renting is pride of ownership. 2. Buying a home will usually have fewer costs than renting. 3. The home buying process ends with closing the purchase transaction. 4. A larger down payment will reduce the amount of the mortgage needed. 5. Conventional mortgages usually have a rate that changes as market interest rates change. multiple choice 6. A common disadvantage of buying a home is: A. few financial benefits. B. limited mobility. C. restrictions on decorating and having pets. D. conditions in the lease. 7. The home buying process starts with: A. locating and evaluating a home. B. pricing the property. C. determining homeownership needs. D. obtaining an appraisal of the property. 8. The amount of a mortgage a person can afford is affected by: A. the location of the house. B. her or his income. C. the cost of insurance. D. his or her age. 9. A mortgage has a very large final payment. A. conventional B. graduated-payment C. shared-appreciation D. balloon 10. The charges for settling a real estate transaction are also called costs. A. mortgage B. closing C. possession D. selling case application Roberto and Shelly have been able to save $7,000 for a down payment on a house. Roberto would like to buy a large home that is a long drive from their jobs. Shelly would like a small townhouse near their work. What factors should they consider when buying a home? www.practicalmoneyskills.com buying a home quiz 3-5

lesson three quiz: buying a home answer key true-false 1. t A main advantage of renting is pride of ownership. 2. f Buying a home will usually have fewer costs than renting. 3. t The home buying process ends with closing the purchase transaction. 4. t A larger down payment will reduce the amount of the mortgage needed. 5. f Conventional mortgages usually have a rate that changes as market interest rates change. multiple choice 6. B A common disadvantage of buying a home is: A. few financial benefits. B. limited mobility. C. restrictions on decorating and having pets. D. conditions in the lease. 7. C The home buying process starts with: A. locating and evaluating a home. B. pricing the property. C. determining homeownership needs. D. obtaining an appraisal of the property. 8. B The amount of a mortgage a person can afford is affected by: A. the location of the house. B. her or his income. C. the cost of insurance. D. his or her age. 9. D A mortgage has a very large final payment. A. conventional B. graduated-payment C. shared-appreciation D. balloon 10. B The charges for settling a real estate transaction are also called costs. A. mortgage B. closing C. possession D. selling case application Roberto and Shelly have been able to save $7,000 for a down payment on a house. Roberto would like to buy a large home that is a long drive from their jobs. Shelly would like a small townhouse near their work. What factors should they consider when buying a home? They should start with how much they are able to afford. Next, they should consider the location where they would like to live. In addition, they should investigate various sources and types of mortgages. www.practicalmoneyskills.com buying a home quiz answers 3-5 key